Why do we use IRR to calculate returns?

On 01.06.2024, we carried out a recalculation of the annual return for all the loans that are mediated via FundingPartner. The annual return for all paid-off loans is now stated as the internal rate of return (IRR).

The internal rate of return is an annual percentage measure of how profitable an investment has been. The internal interest rate provides a more accurate measure of the return via a loan that is mediated via FundingPartner than previous methods we used. This as the internal interest rate takes into account all cash flows from the loan and the time value of money. For example, if a loan repays part of the principal earlier than expected, you can reinvest those funds and potentially achieve additional returns, which is reflected in the calculation of the IRR. This provides one of the returns on your investments compared to simpler calculation methods that do not take into account the timing of the cash flow.

In addition, IRR is the industry standard for return metrics, making it easy to compare the returns from FundingPartner's loans with alternative investment products.