# Interest Rate & Fees

## Interest Rate & Fees

The interest rate, known as the **Loan Fee Rate**, is the annual rate of interest used to calculate the amount of interest payable to the Lender. In other words, this is the annual interest rate accrued by Lenders each day for Loans made to the Borrower (OpenTrade SPC). 

In the Managed DeFi Vault, the interest rate is set as a weighted average of the yield generated by the collateral portfolio, less fees. Principal and interest is compounded daily. 

<table><thead><tr><th width="190">Term</th><th>Definition</th><th>Payable By / To</th></tr></thead><tbody><tr><td>Loan Fee Rate</td><td>The annual rate of interest earned by Lenders for each day their loan remains outstanding. Set as a weighted average of the yield generated by the collateral portfolio, less fees. Principal and interest is compounded daily. </td><td><ul><li>Payable by the Borrower</li><li>Paid to the Lender</li></ul></td></tr><tr><td>Advisor Fee</td><td>A fee charged by the Advisor to cover the costs of advising OpenTrade SPC in buying / selling and managing the portfolio of Loan Collateral.</td><td><ul><li>Payable by the Borrower</li><li>Paid to the Advisor</li></ul></td></tr><tr><td>Platform Fee</td><td>A fee charged by the Platform Provider to cover the costs of developing and maintaining the OpenTrade Platform and related expenses.</td><td><p></p><ul><li>Payable by the Borrower</li><li>Paid to the Platform Provider</li></ul></td></tr><tr><td>Liquidity Fee</td><td>Paid to the Platform Provider to cover the cost of providing liquidity as required to ensure interest is payable immediately.  </td><td><p></p><ul><li>Payable by the Borrower</li><li>Paid to the Platform Provider</li></ul></td></tr></tbody></table>

### Calculating the Loan Fee Rate

The Loan Fee Rate is calculated by subtracting the Benchmark Rate from Fees, where Fees are defined as the sum of the Advisor Fee, Platform Fee, and Spread.&#x20;

{% hint style="info" %}
The Benchmark Rate is updated daily at the Withdrawal Cut-Off Time. This means the Loan Fee Rate will change in line with any fluctuations.&#x20;
{% endhint %}

#### Example

<table><thead><tr><th width="172">Benchmark Rate</th><th width="135">Advisor Fee</th><th width="137">Platform Fee</th><th width="111">Liquidity Fee</th><th>Loan Fee Rate</th></tr></thead><tbody><tr><td>5.25%</td><td>0.10%</td><td>0.20%</td><td>0.20%</td><td>4.75%</td></tr></tbody></table>

```json
.0525 - (0.001 + 0.002 + 0.002) = 0.0475
```

### Calculating the Daily Interest Rate

The Loan Fee Rate is transformed into a Daily Interest Rate each day by taking 1 day of the Loan Fee Rate, compounded daily

#### Example

Where the Loan Fee Rate = 0.0475 (4.75% APR),&#x20;

```json
(1 + .0475) ^ 1/365 - 1 = 0.01074598%
```

This daily interest rate is added to the prior days [exchange rate](https://docs.opentrade.io/product-overview/vault-tokens#flexible-term-vault-exchange-rate) to calculate the exchange rate for the next day.&#x20;