What is an interest rate?
As a borrower, an interest rate is the rate at which you are being charged for your borrowing, and it is generally based on a percentage of your borrowed amount applied over a period of time. Most lending institutions charge a fixed (not subject to change) interest rate, whether it’s against a loan or credit card purchase and repayments.
For investors, an interest rate is the gross yield (return) on your investment, generally based on a percentage of the amount you invested as a per annum rate.
There are a range of factors that contribute to setting an interest rate, and different banks and financial institutions have their own formulas for calculating the rate.
How Harmoney calculates interest rates
Harmoney’s interest rates are based on the individual circumstances of each applicant, including their credit score, among other factors. If Harmoney approves your loan application, we will assign both an interest rate and a maximum amount you can borrow, taking into consideration your ability to service the loan (i.e. your ability to make repayments).
Interest rates and fees
Harmoney’s interest rate and fee structure is totally open and transparent.
Investors, please note that references on the Harmoney website to interest rates and rates of return are expressed as gross returns, before deduction of any fees or without any withholding or deductions, unless otherwise specified.
What is compound interest?
A simple way to think about compound interest is “interest on interest” – the amount of interest paid on both the initial investment amount and any interest accumulated since the initiation of the investment.
For investors, compound interest is important as it can give you an indication of how your investment is likely to perform if you continue to reinvest your principal and returns over numerous years.
Harmoney investments do not automatically compound - you must reinvest interest earned on your investment to get the impact of compounding interest.
Set interest investment
Harmoney does not have a set rate for investors, just as we don’t have a set rate for borrowers. Not all borrowers are the same, and the size of your loan and the length of time you wish to pay it back in is going to differ from person to person; which is why our interest rates differ from person to person. Our interest rates are calculated according to the borrower's individual circumstances, and as investors have the opportunity to invest in numerous loans with varying interest rates, the overall interest they receive on their total investment will be dependent on the rates of the individual loans they invest in.
Fixed interest investment
A fixed interest investment is where a lender loans money to a borrower, and the borrower then pays a fixed (not subject to change) amount of interest over a fixed period of time. There are many types of fixed interest investments, the most common being bonds and term deposits.
Harmoney’s investments differ from fixed interest loans in that our investors generally do not directly fund only one borrower. To minimise the risk to investors, our loans are split into $25 fractions that can then be invested in multiple individual loans. Effectively, investors are holding numerous fixed interest investments within one portfolio.
Because there are multiple investments, there will be multiple loan holders with varying interest rates and terms set for their loan. Therefore, while the individual fractions could be considered fixed interest investments, an investor’s portfolio as a whole is subject to change, with different loans paying off at different times with different interest rates.
Loan interest and investors
When you invest with Harmoney, borrower repayments are returned to your investor account, with the option of being withdrawn or reinvested.
Investor funds that are not on loan are held in a trust account and do not accrue interest. Investors are charged a Service Fee of 1.25% of the principal and interest payments collected on each note. The service fee is deducted from repayments into the investor’s account. Find out more about Harmoney's fees.