Yobota care about the detail – How we changed accrual methods

Brace yourselves and hold on to your hats because the first in our ‘Yobota care about the detail’ blog series takes a look at the wild world of intraperiod accruals. For many providers in our space, this isn’t an area they could do much about, their systems are fixed and have one way of doing things, whereas we built our platform to be super bendy and fit to the changing needs of the industry. When a client made an offhand comment about having to adjust their accrual numbers every month, we didn’t just have to say ‘meh – that’s how it goes’, we can actually flex our system to help solve the problem.

Interesting Interest

I’m sure you, like me, have always held a deep seated fascination with exactly how and when your interest is calculated when you take out a lending product. Just in case you haven’t, we’ll have a little recap. When you borrow money and pay it back with interest, the lender works out the annuity (the regular payment) so that you pay back the same amount each month, despite the fact that you’re reducing both the principal amount borrowed – and the interest accrued. Now I’m notoriously appalling at maths, so I’m going to keep the numbers very simple.

If you borrow £100, we might calculate that you’ll pay back £10 a month, so the first month, you’re paying say, £9 off the £100 borrowed, and £1 of interest. Next month, you’ll pay your £10 but the amount that goes towards principal vs interest will be rejigged slightly, because the key thing is making it nice and easy for the customer to keep track of the payments rather than having them change slightly each time. Assuming you make all your payments as standard this is all good, if you don’t, then the maths gets trickier.

Maths Gone Mad

Say you want to pay off the rest of your loan only ten days after your most recent payment, we would have to work out exactly what the interest is for those ten days, instead of for the whole month. The default way of doing this, based on minimum viability, was to take the 365 days in the year, and divide it by the 12 monthly payment periods, which seems logical, but this makes the standard period 30.42 days, which is of course not the length of any month, so every single one needs slight adjustment, instead of just adjusting the months that aren’t 30 days. So ten days into the month should be a simple one third split, but because the standard calculation would be 10/30.42, it makes it a silly, messy number to pay back.

While this is fine for much of the industry, we love a challenge, and decided that the flexibility of our system gave us the perfect opportunity to find a better way. Our clever engineers worked out a way to have it automatically calculate the amount based on the actual date of the payment, and the actual day in the month, rather than this mythical date in a weird, invented month. They did countless tests, checking against all kinds of elaborate use cases to make sure we could get it right in any scenario, and found that it makes life easier for absolutely everyone involved. So even if you have a product on the old system, this super clever change means it will automatically figure that out, and move you over to the new system at the appropriate time. Not only does this make the accountants happy, but it also means you should never think you’ve closed out a loan only to get one of those annoying letters telling you you actually still owe 7p, or something equally fiddly.

So basically, it’s hooray for sensible maths, and the clever Yobotians who do it!

‍