The borrow fee
A simple yearly rate on what you borrow, fixed for 90 days at a time. Changes are announced in advance, capped, and never touch a term already running.
#How it's charged
The borrow fee is simple interest on what you borrowed: it's never charged on fees you haven't paid yet, so it doesn't compound. It's worked out to the millisecond, and it doesn't matter how often your loan is updated: what you owe is always the same.
At launch the fee is 6% a year. Borrow $1,000 for 90 days and the fee comes to about $14.79.
The fee builds up as you go and is paid when you repay: each repayment pays the fee owed first, then reduces what you borrowed.
#Fixed for 90 days
Every loan runs in terms of 90 days, starting from the day it was opened. The fee in force when a term starts is the fee for that whole term, whatever happens to the fee in the meantime.
When a term ends, the next one starts at the fee in force on that day. Anyone can move a loan onto its next term, and doing it late gives exactly the same result as doing it on time: the new term is always priced at the fee on the day the old one ended.
The protocol remembers the last eight fee changes. If a loan's renewal date is older than that record, it renews at the highest fee the rules allow, 15%. Fee changes are rare, so the record normally reaches back years, but it's one more reason to keep an eye on a loan you haven't touched in a while.
#How the fee can change
- Within limits: never below 1% or above 15% a year. These limits are written into the contracts and can never change.
- In small steps: at most 2 percentage points per change.
- With notice: announced at least 48 hours before it applies, with at least 48 hours between changes.
- Never mid-term: a new fee only reaches a loan when its next 90-day term starts.