ANAR and adjusted account value have always been a little bit of a mystery, but this thread has helped me understand it better. The more I think about it, the more I think it makes sense, and I also think the formula is the truest approximation that can be given. I don't think there is any contradiction with the $5k initial deposit, an adjusted account value of approximately $5k, and an ANAR of .17%. Here is how I see it:
1) An investor makes a deposit into LC.
2) LC funds are used to select notes to invest in.
3) Each note has its own interest rate; the sum of all interest rates is the weighted average.
4) The actual return can only be known in retrospect and after all loans have either been paid off or charged off.
5) In the interim, one way (is it the best?) to approximate the return given the uncertainty of future payments is to sum all payments and adjustments as a percentage of principal and then annualize it.
6) The adjusted account value is an extrapolated amount based partly on your current payments and partly from loss assumptions from LC platform based on the trailing 9 months.
The ANAR and adjusted account value are kind of just projections, but they have some validity because it uses historical 9-month loss assumptions. But it is still fairly uncertain, and your exact loss rates will not match the LC platform as a whole. Mathematically, the fact that you had an initial deposit of $5k and an adjusted account value of roughly $5k doesn't mean that ANAR should be 0%.
Here is another way to think about it: take the sum of all your payments to-date, less adjustments (charge-offs and service fees), and apply some adjustment amount to take into account future charge-offs. This will give you a monthly return. Annualize it and then apply it to your note principal for the remaining life of your note amount and you will get some other number (i.e., adjusted account amount). This other number, when compounded at an .17% for the time period of your weighted note terms, just happens to be astonishingly close to your initial investment amount. This isn't evidence that the formula is overestimating anything at all or being misleading, it's just dealing with uncertainty in the way it was designed.
You actual, after-the-fact return will of course be different than what you see here, but this can't be known until all notes have run their full course, and at that point it's a very simple calculation. This is just an interim approximation. The easiest way to see how fickle the ANAR is and adjusted account amount is to tweak it yourself:
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