Reading pricing results
Results is the last part of the Pricing section. It shows the required rate (the note rate at which this loan’s projected return meets the target you set) and the projection behind it, built from the inputs you set in Pricing a loan. Everything in the section comes from one month-by-month projection of the loan, and every figure ties back to that projection’s table, so a credit officer can check the result by hand. The method behind each component is explained in Loan pricing.
How Results is laid out
Section titled “How Results is laid out”Results can show one of three prompts instead of numbers:
- Provide your funding (FTP) curve to see results: no funds-transfer pricing curve (your cost of funds by term) yet.
- Enter a loan amount to see results: the amount box is empty and the cohort (the loans your segment selects) has no average to fall back on, or the amount is $0.
- No single rate meets this target with this funding curve: see When no rate meets your target.
Otherwise Results reads top to bottom: any notices, a one-line summary (Pricing a $250,000 loan over 60 months.), the comparison, the rate choice, and then four blocks that all describe one projection.
The comparison sets the required rate beside your proposed rate, if you entered one, and Model this loan at chooses which of the two the rest of Results projects the loan at; both are covered in Pricing a loan.
Every block below the rate choice carries a badge naming its rate, At required rate: 7.60% in green or At proposed rate: 7.25% in amber, so you always know which loan you are looking at.
Some figures differ on the ROE path, meaning when you state the required return as a target return on equity (ROE) rather than a target return on assets (ROA). Each difference is noted where it appears.
This loan’s projection
Section titled “This loan’s projection”| Figure | What it is |
|---|---|
| Projected return | The return this projection earns, beside Your target. At the required rate the two match. |
| Adjusted term | The loan’s expected life including projected prepayments and defaults: the weighted-average life of every dollar of principal that leaves, whether repaid on schedule, prepaid, or charged off. Each dollar is weighted by the month it leaves, so a defaulting balance shortens the life exactly as a prepaying one does. |
| Blended funding rate | The funding cost charged on this loan: every dollar of principal is funded to the month it leaves at your curve’s rate for that term, and the loan is charged the balance-weighted blend as one flat rate. Beside it is the bullet tenor it is equivalent to, for example Equivalent to a ~35-month bullet on your curve: the average month in which this loan’s principal comes back, weighting each dollar by how long it stays outstanding. |
| Projected lifetime loss (this loan) | The loss projected for one new loan of this size and term at the cohort’s measured rates, as a percent of the loan amount. It is a different figure from the Credit Loss section’s headline, which is the cohort’s own history as a share of what it lent. |
These are derived from the projection, not inputs: changing the term or the rate changes all of them. Beneath them, sentences state what they rest on: how the funding blend was priced, that the adjusted term includes defaults, and, when they apply, that prepayment could not be measured or that the cohort’s measured experience begins partway into the loans’ life.
Profitability of this loan
Section titled “Profitability of this loan”| Figure | Rule |
|---|---|
| Lifetime profit | Total net income over the projection. |
| Return on assets | Net income annualized over the loan’s balance-years. |
| Return on equity | On the ROE path only: net income over the capital share of the balance-years. |
| Net interest margin | Interest less funding, annualized over balance-years. |
| NPV at FTP | Net present value of the month-by-month net income, discounted at the blended funding rate the projection charges. On the ROE path the discount rate is still the full blended rate, even though the table’s funding column charges only the debt-funded share. |
| Break-even month | The month cumulative profit turns positive and stays positive, or Does not break even. |
Balance-years is the loan’s balance carried over time: the sum of the month-by-month table’s beginning balances, divided by 12.
where B_m is the beginning balance in month m and T is the term. For example, a $100,000 loan whose beginning balances over its life add up to $2,400,000 has balance-years of $200,000; if it earns $3,000 of net income over its life, its return on assets is 1.50%. Reading these returns against an average balance instead would put you off by roughly a factor of the loan’s life.
Break-even is the last crossing, not the first. A loan can be briefly above water in month 1 on upfront fees and then sink under a seasoning loss. A loan that ends under water reports no break-even month.
The rate build-up
Section titled “The rate build-up”At the required rate, Rate build-up shows the components that sum to the required note rate, in this order:
| Component | Direction |
|---|---|
| Funding cost (blended FTP) | Adds |
| Equity funding credit (ROE path only) | Subtracts |
| Interest forgone on defaulted balances | Adds |
| Expected credit loss | Adds |
| Origination cost (amortized) | Adds |
| Servicing cost | Adds |
| Your custom costs | Add |
| Fee income credit (shown when you have entered fees) | Subtracts |
| Your custom fees | Subtract |
| Required return (ROA), or Required return (capital charge) on the ROE path | Adds |
Every component shares one denominator: the loan’s balance-years on the one projected path. Each component’s rate is its own dollars in the month-by-month table divided by balance-years. The dollar column shows each component per year on the loan amount, the usual quoting basis: 25 basis points (a basis point is a hundredth of a percentage point) on a $250,000 loan reads as $625 per year. Multiply that by the adjusted term in years and you get the component’s own column total in the table, because balance-years equal the loan amount times the adjusted term.
Two components may be new to you:
- Interest forgone on defaulted balances. Interest accrues only on performing balance, while funding and costs are charged on the full balance carried. The gap is a real cost: the note rate ÷ 12 × the projection’s total defaulted principal, over balance-years. It is shown when it rounds to at least one basis point; the downloaded file always carries it.
- Equity funding credit. On the ROE path, funding is shown on the full balance, and the share of the loan funded by your capital is credited back at the same blended funding rate. Debt funding is effectively charged on the rest, which is standard matched-funds practice.
When your proposed rate governs, the same components read the other way as a Return build-up: it starts from Your proposed rate, deducts each cost, adds back each credit, and lands on the Projected return on assets (and Projected return on equity on the ROE path). A last row states the distance from your target in points of return, such as 1.96 points below or Meets your target.
Month-by-month detail
Section titled “Month-by-month detail”The block shows two charts and a table, all of the same projection:
- Monthly net cash flow, with Cumulative profitability as a line that crosses zero at break-even.
- Remaining balance: how the loan pays down, including expected defaults and prepayments.
- Month-by-month projection: one row per month with Begin balance, Interest, Scheduled principal, Defaulted principal, Prepaid principal, End balance, Funding cost, Servicing cost, Origination cost, Loss, Fee income, Line items (when you have custom items), Net income, and Cumulative net income.
Each month applies default first, then scheduled principal, then prepayment, at the cohort’s own measured rates by age. The default comes off the beginning balance; interest accrues on what survives it; scheduled principal is the share of that surviving balance a level-payment loan with the remaining months would retire; prepayment comes off what is left after that. Prepayment follows the same projected path the prepayment chart shows, so it continues past the edge of your data. Loss dollars track the cohort’s net charge-off rate applied to the beginning balance, with no assumed loss severity, and never exceed the principal that defaulted that month; on a book that reports only gross charge-offs, net equals gross. Servicing, recurring fees, and funding are charged on the beginning balance. One-time costs and fees land in the month the cash moves (the origination cost in month 1), while the build-up spreads them over balance-years to express them as a rate. The lifetime totals agree; only the timing differs.
The table is always shown, and it shows cents, because its columns are parts of one another and a reader will add them up. A note says a column’s parts may differ from its total by up to $0.01. Above the table:
- A sentence states that the loan is projected as a level-payment amortizing loan, so an interest-only or balloon loan would carry a higher balance for longer and cost more in interest, funding, and credit loss.
- A cross-foot note states that the annual credit-loss rate × (the sum of the Begin balance column ÷ 12) equals the Loss column’s total, and prints both figures so you can close it on screen.
- When they apply, notes explain a Prepaid principal column of zeros (prepayment could not be measured) or zeros in the opening months (ages the cohort’s data never observed, not measured zeros).
On the ROE path, the funding column is headed Funding cost (debt share): it charges the blended rate on the share of the balance your capital does not fund, so its total equals the build-up’s funding cost less the equity funding credit.
When credit loss cannot be measured
Section titled “When credit loss cannot be measured”If no upload in your organization supplies a charge-off amount (neither a charge-off amount column nor a transaction ledger with a type code classified as a charge-off; a charge-off flag or status alone carries no amount), the expected credit loss is left out of the build-up and the sum, never priced at 0.00%. Pricing still runs, and a notice above the rate, These calculations exclude credit loss, says what it costs you: the required rate, the comparison, the profitability, and the projection are all calculated without a credit-loss component, so a real loan would need to earn more than the rate shown, and a proposed rate that looks adequately priced may not be.
In that state the projection runs with no defaults at all, and the month-by-month table drops its Defaulted principal and Loss columns rather than printing zeros. See Charge-offs and recoveries for what counts as a charge-off amount.
When prepayment cannot be measured
Section titled “When prepayment cannot be measured”A cohort whose prepayment speed cannot be measured is still priced in full, at zero prepayment. That is deliberately conservative: balance that never leaves stays exposed to loss and keeps earning interest, so both the projected loss and the projected interest read on the high side. The sentences beside the figures say so, and name which of the two reasons applies. See Reading the prepayment section.
When no rate meets your target
Section titled “When no rate meets your target”A funding curve with an implausible point can make your target unreachable at any rate. When the required rate governs, Results shows No single rate meets this target with this funding curve, asks you to check the curve, the required return, and the term, and shows any warnings about the curve. It then offers to model at your proposed rate instead, or tells you where to enter one. When your proposed rate governs, its projection shows as usual, and the comparison’s required-rate cell says in words that no single rate meets your target. No best-effort number appears anywhere in this state: a rate Vintage cannot stand behind is worse than none.
When your loan runs past your curve
Section titled “When your loan runs past your curve”If the loan’s term is longer than the longest term on your funding curve, Results shows Your funding curve is shorter than this loan, names both terms, and says the months past your curve are funded at your longest quoted rate. Add longer terms to the curve to price them directly.