|
|
Post by tom1 on Dec 9, 2019 9:02:04 GMT
With the new features you can now look at the full details of each of the loans you have. This includes a breakdown of the interest rate, fees etc.
I've only sampled a few but what is quite surprising is that the headline interest rates hide an awful lot. So far a lot of the loans I have looked at breakdown something like this (real example):
my rate: 4.3%
borrower interest: 3.8%
fees per annum: 16.5%
APR (combined interest and fees): 18.9%
I don't know about anyone else but this really surprised me. I had assumed that as I was lending at quite reasonable interest rates that the human on the other end of the transaction was getting the loaned money at a reasonable cost. numbers like 18.9% look a lot like the rip-off rates that credit cards charge..
Now clearly I want to make good returns and the money to cover this and the offset some of the risks with lending has to come from somewhere but with the headline interest rates I was seeing from the lender side, I definitely felt more like I was helping lend at rates that weren't quite as money grabbing as banks/credit cards. Now I feel conflicted.
While it might technically be accurate in some financial regulation somewhere, it also seems incredibly disingenuous to describe the above loan as having an "interest rate" of 3.8%.
|
|
|
|
Post by tom1 on Dec 9, 2019 9:13:16 GMT
Just to balance the information I presented above, I have clicked through even more and found a couple of significantly less egregious examples (although RS must be losing money on them!) but they are in the minority of my loans at least.
Most of the loans that looked like the numbers above were for the £700-900 (total loan not my part of it) in category Other so I assume are mobile phones.
I've found a quite different example of one around £22000 (total loan not my part of it):
my rate: 3.9%
borrower interest rate: 3.0%
fees per annum: 0.4%
APR: 3.3%
I've also found some with my rate 4% and borrower APR 8-9% which match up with what I thought was happening - reasonablish cost of borrowing, covering some risk and perhaps some profit for RS and everyone benefits.
|
|
|
|
Post by dan1 on Dec 9, 2019 9:24:51 GMT
With the new features you can now look at the full details of each of the loans you have. This includes a breakdown of the interest rate, fees etc. I've only sampled a few but what is quite surprising is that the headline interest rates hide an awful lot. So far a lot of the loans I have looked at breakdown something like this (real example): my rate: 4.3% borrower interest: 3.8% fees per annum: 16.5% APR (combined interest and fees): 18.9% I don't know about anyone else but this really surprised me. I had assumed that as I was lending at quite reasonable interest rates that the human on the other end of the transaction was getting the loaned money at a reasonable cost. numbers like 18.9% look a lot like the rip-off rates that credit cards charge.. Now clearly I want to make good returns and the money to cover this and the offset some of the risks with lending has to come from somewhere but with the headline interest rates I was seeing from the lender side, I definitely felt more like I was helping lend at rates that weren't quite as money grabbing as banks/credit cards. Now I feel conflicted. While it might technically be accurate in some financial regulation somewhere, it also seems incredibly disingenuous to describe the above loan as having an "interest rate" of 3.8%. The lender rates often bear little relationship to the underlying borrower rates because of the underlying matching process. My largest loan has a borrower rate of 3.3% yet my lender rate is 9.0%, go figure! I seem to have the bulk of the outstanding loan too fwiw.
|
|
rscal
Posts: 910
Likes: 500
|
Post by rscal on Dec 9, 2019 20:23:00 GMT
Well they've been forced into this level of disclosure and a good thing too.
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Dec 9, 2019 20:43:49 GMT
As of the last 12 months, the average of the split of fees is Average borrower rate 11.3% Average borrower fees 7.0% Provision Fund contribution 4.0% RateSetter fees 3.0% Average investor returns 4.3% The range of rates for each category of loan was already available prior to today www.ratesetter.com/invest/investing-with-us/lending-criteriaWhat we can now see is the rates for our specific loans. Am not sure how useful the new info is at an individual loan level when we could already see the range. The average data above is useful. I think the individual loan info was a requirement of the new FCA rules. |
|
|
|
Post by bernythedolt on Dec 10, 2019 3:37:54 GMT
Thanks jlend . Bit of an eye-opener for me, as I truly hadn't expected RS to be raking off quite as much, at 3% for them and 4.3% for us. I guess credit checking, due diligence, etc is a time consuming and costly business when done properly. There was me thinking RS was struggling to find any margin and perhaps nibbling off the odd 0.5% in fees where they could! |
|
|
|
Post by tom1 on Dec 10, 2019 8:51:38 GMT
[..] The range of rates for each category of loan was already available prior to today www.ratesetter.com/invest/investing-with-us/lending-criteriaWhat we can now see is the rates for our specific loans. Am not sure how useful the new info is at an individual loan level when we could already see the range. The average data above is useful. I think the individual loan info was a requirement of the new FCA rules. Thanks - I was not aware of that page - I had been watching the statistics page but had not realised this summary of lending criteria was available, nor that it included the averaged data. That certainly explains the 49% APR I found on a few loans! "Typical end-borrower APR: 40% to 60%" - so some of mine are from the mis-guided Lending Business venture.. I'm very glad I went with the platform with the Provision Fund model rather than the individual losses model.
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Dec 10, 2019 9:02:36 GMT
[..] The range of rates for each category of loan was already available prior to today www.ratesetter.com/invest/investing-with-us/lending-criteriaWhat we can now see is the rates for our specific loans. Am not sure how useful the new info is at an individual loan level when we could already see the range. The average data above is useful. I think the individual loan info was a requirement of the new FCA rules. Thanks - I was not aware of that page - I had been watching the statistics page but had not realised this summary of lending criteria was available, nor that it included the averaged data. That certainly explains the 49% APR I found on a few loans! "Typical end-borrower APR: 40% to 60%" - so some of mine are from the mis-guided Lending Business venture.. I'm very glad I went with the platform with the Provision Fund model rather than the individual losses model. The Investor Return table on the Statistics page is also useful I think. It now shows how the PF payments to lenders have impacted our interest rate return every year. So you can see the difference the PF has made and what you would have got had the PF not paid out for any reason.
|
|
sl75
Posts: 2,092 
Likes: 1,245
|
Post by sl75 on Dec 11, 2019 10:51:51 GMT
Another real example that shows the other side of the coin, and probably explains a lot behind RateSetter's rational for reducing the "Going Rate" in Plus and Max products:
Contract Date 25 November 2019 Your interest rate 5.5%
Borrower interest rate 4.5% Borrower APR 4.9%
Borrower fees p.a. 1.7%
Original loan term 24 months Loan term remaining 9 months
That would originally have been matched on the "Rolling" market giving RateSetter a slim but positive margin, and whoever originally held that loan was selling out during a rate spike in late November.
Indeed, I suspect that a lot of the reason behind the lowering of rates in Plus and Max would have been because RateSetter observed a pattern of investors liquidating their Access holdings (formerly Rolling) and re-investing the proceeds in Plus or Max for a better rate, exacerbating a rate spike that was already in progress - effectively the same activity as the 14 day ban from re-investing in Access was intended to block, but presumably permitted because it's now being re-invested in a different product (even if it's really the same product but wearing sunglasses and a hat!)
|
|
aju
Member of DD Central
Posts: 3,484
Likes: 917
|
Post by aju on Dec 11, 2019 11:04:37 GMT
Another real example that shows the other side of the coin, and probably explains a lot behind RateSetter's rational for reducing the "Going Rate" in Plus and Max products:
Contract Date 25 November 2019 Your interest rate 5.5%
Borrower interest rate 4.5% Borrower APR 4.9%
Borrower fees p.a. 1.7%
Original loan term 24 months Loan term remaining 9 months
That would originally have been matched on the "Rolling" market giving RateSetter a slim but positive margin, and whoever originally held that loan was selling out during a rate spike in late November.
Indeed, I suspect that a lot of the reason behind the lowering of rates in Plus and Max would have been because RateSetter observed a pattern of investors liquidating their Access holdings (formerly Rolling) and re-investing the proceeds in Plus or Max for a better rate, exacerbating a rate spike that was already in progress - effectively the same activity as the 14 day ban from re-investing in Access was intended to block, but presumably permitted because it's now being re-invested in a different product (even if it's really the same product but wearing sunglasses and a hat!)
That's a very interesting thought and does look like it would have been a good strategy. Thankfully its not one that would have affected our investments as the new rates for us are lower than our already good rates. One to bear in mind for any future changes. Would this not mean that RS will need to be careful in moving rates upwards too - dare I say this kind of thing will make them wary of increases as well.
|
|
sl75
Posts: 2,092
Likes: 1,245
|
Post by sl75 on Dec 11, 2019 11:30:45 GMT
Would this not mean that RS will need to be careful in moving rates upwards too - dare I say this kind of thing will make them wary of increases as well. The advantage to RateSetter of having us invest through Max is that we're better locked in to the selected rate - a fee equivalent to 90 days' interest means you're not going to sell just because rates have increased a little.
The advantage to RateSetter of having us invest through Access is that they keep more of the margin for themselves in the short-term, but risk that we could re-invest the money at a higher rate at any moment, squeezing their margin.
Do note that although they've now got a negative margin for the final 9 months of this amortising loan, they would have had a positive margin for the first 15 months, which would account for around 85% of the lifetime interest on the loan due to the amortisation profile; the original loan amount is around 260% of the balance now outstanding, so each £1 they "lose" on a negative margin this month, they'd have gained £2.60 on a positive margin in month 1.
The bigger effect would have been on new loans as stated, where having a larger chunk than expected of the money paying ~5% interest to the investor rather than ~3% interest would be squeezing their margin much harder for the entire duration of the underlying loan. It's just interesting to note that there are examples in the wild of negative margins as a result of the market changes.
|
|
jlend
Member of DD Central
Posts: 1,817
Likes: 1,444
|
Post by jlend on Dec 11, 2019 11:41:39 GMT
Another real example that shows the other side of the coin, and probably explains a lot behind RateSetter's rational for reducing the "Going Rate" in Plus and Max products:
Contract Date 25 November 2019 Your interest rate 5.5%
Borrower interest rate 4.5% Borrower APR 4.9%
Borrower fees p.a. 1.7%
Original loan term 24 months Loan term remaining 9 months
That would originally have been matched on the "Rolling" market giving RateSetter a slim but positive margin, and whoever originally held that loan was selling out during a rate spike in late November.
Indeed, I suspect that a lot of the reason behind the lowering of rates in Plus and Max would have been because RateSetter observed a pattern of investors liquidating their Access holdings (formerly Rolling) and re-investing the proceeds in Plus or Max for a better rate, exacerbating a rate spike that was already in progress - effectively the same activity as the 14 day ban from re-investing in Access was intended to block, but presumably permitted because it's now being re-invested in a different product (even if it's really the same product but wearing sunglasses and a hat!)
That is the reason they gave for the last rate cut. A higher proportion of lenders were going for Plus and Max rather than Access than they expected.
|
|
|
|
Post by propman on Dec 22, 2019 19:28:13 GMT
I've noticed that the recent spike rates on max are all 18 months or less. I wonder whether they deliberately matched these where the cost to them was small while leaving some lower rate money for new matches?
|
|
