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Post by caveman38 on Apr 24, 2016 9:54:01 GMT
caveman38 , in case you have missed them, there is a thread here discussing these types of loans, and another older one here that dates back to when the new partner first started with MT. Both contain useful explainitory information from Ed MoneyThing themselves. Thank you for the links. However I still cannot determine from those posts, how secure the loans are. Thanks anyway - I am obviously not that clued up.
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littleoldlady
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Post by littleoldlady on Apr 24, 2016 12:18:59 GMT
caveman38 , in case you have missed them, there is a thread here discussing these types of loans, and another older one here that dates back to when the new partner first started with MT. Both contain useful explainitory information from Ed MoneyThing themselves. Thank you for the links. However I still cannot determine from those posts, how secure the loans are. Thanks anyway - I am obviously not that clued up. I suggest that instead of trying to determine for yourself which loans are more likely to default you rely on diversification and the excess interest (compared to FSCS products) to cover defaults. Once you have a dozen or so loans you can tolerate one total loss or several partial losses. The platforms are much better placed than you for assessing loans and it is not in their interest to have any default. Also diversify across platforms.
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Jeepers
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Post by Jeepers on Apr 24, 2016 17:24:36 GMT
80% LTV based on retail value? Surely the LTV should be based on the trade price of the vehicles which would probably make is at least 100% LTV.
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Post by mrclondon on Apr 24, 2016 17:44:14 GMT
80% LTV based on retail value? Surely the LTV should be based on the trade price of the vehicles which would probably make is at least 100% LTV.
These are not the easiest loans to understand, and are discussed in the threads previously linked.
The primary security is NOT the cars but the HP agreements, and are set at 50% LTV of the HP agreement total cashflow (as is stated on the loan page on the website, and shown on the schedule attached to the loan page)
If an underlying borrower (i.e. a car purchaser) defaults, the defaulted HP agreement is swapped out by the partner (assuming the partner is still trading)
If the partner ceased to trade, all the underlying HP agreements would be taken over by MT and continue to be run through to term. Some of which will default, and the car will need to be sold, but the LTV against the car is not that much of a factor as any capital loss on a particular vehicle should be covered by the continuing HP cashflow on the remaining cars ... and 50% LTV should provide a more than adequate cushion.
The BLX loans on Funding Empire operate on a similar principle, but only yield 10% pa.
As always the best advice is not to invest if you are not confident you fully understand the loan and its underlying security.
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Jeepers
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Post by Jeepers on Apr 24, 2016 18:10:56 GMT
From what I understand, these people buying the cars can't get credit from other lenders due to such poor credit rating which gives a high risk of default. The only tangible security is the vehicles which if they are currently at an LTV of 80% retail value, it's very likely they wouldn't cover the loan amount. Maybe I'm missing something here but the 12% return being offered isn't a high enough when compared to many PBL's at a lower LTV giving the same return. Especially when you consider the customers are paying 28% interest.
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Post by mrclondon on Apr 24, 2016 18:28:09 GMT
From what I understand, these people buying the cars can't get credit from other lenders due to such poor credit rating which gives a high risk of default. The only tangible security is the vehicles which if they are currently at an LTV of 80% retail value, it's very likely they wouldn't cover the loan amount. Maybe I'm missing something here but the 12% return being offered isn't a high enough when compared to many PBL's at a lower LTV giving the same return. Especially when you consider the customers are paying 28% interest.
May be looking at it slightly differently will help.
If MT were forced to take over the HP agreements, providing just half of those agreements ran to term, the cars of the other half could simply be crushed to get rid of them and there would be no loss to lenders. In reality providing something like a quarter* of the agreements run to term, and the cars of the other three quarters* are sold for a sensible price there would be unlikely to be a loss to lenders.
* 25:75 is a guess without actually modelling the scenario.
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Jeepers
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Post by Jeepers on Apr 24, 2016 19:04:18 GMT
Thanks for your help mrclondon. So are we saying that given the loan is £150,000, the cars sold will generate £300,000 in repayments so we only need half of the customers to repay their loans in full to recover the lent funds? And as a secondary security, the loans running into default will have the cars repossessed to recover some of the funds.
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Post by mrclondon on Apr 24, 2016 19:16:59 GMT
Thanks for your help mrclondon . So are we saying that given the loan is £150,000, the cars sold will generate £300,000 in repayments so we only need half of the customers to repay their loans in full to recover the lent funds? And as a secondary security, the loans running into default will have the cars repossessed to recover some of the funds. Correct
If you look at the schedule attached to the AE392 loan, you'll see based on this snap-shot the loan to AE of £150,000 will generate £407,236.55 of repayments so well under 50% LTV.
The harder issue with these loans is the ethics in ultimately lending people money to buy relatively high priced cars at such APR's. The high APR doesn't concern me, that will simply be risk based modelling by AE, its the higher priced cars than is necessarily needed by someone with a poor credit record that seems slightly wrong.
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Jeepers
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Post by Jeepers on Apr 24, 2016 19:31:27 GMT
There certainly is an ethical issue. Cars with a value of about 5k are being sold at 7.5k with the interest bringing the 5k car to around 16k after 48 months.
The retail price of these cars is really what concerned me as a lender. Clearly the cars are retailing way above their value and our LTV is based on the retail value. I know the primary security is the value of the hire purchase agreements but the LTV should be based on the actual value of the assets (what the vehicles would fetch in auction).
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duck
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Post by duck on Apr 25, 2016 4:23:14 GMT
....... but the LTV should be based on the actual value of the assets (what the vehicles would fetch in auction). But that is notoriously difficult to quantify. In my younger years I worked as a sole trader but in order to be VAT registered (cash advantage to me for my other interests) I registered as a second hand car dealer ( ) ..... I would buy a car at auction and then sell it the following week at another auction. Only ever made a loss on one car. What a car will make at auction really depends on location and timing as much as the metal itself.
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jonah
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Post by jonah on Apr 25, 2016 4:55:50 GMT
Doesn't the internet reduce the variability in price?
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Jeepers
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Post by Jeepers on Apr 25, 2016 5:45:00 GMT
....... but the LTV should be based on the actual value of the assets (what the vehicles would fetch in auction). But that is notoriously difficult to quantify. In my younger years I worked as a sole trader but in order to be VAT registered (cash advantage to me for my other interests) I registered as a second hand car dealer ( ) ..... I would buy a car at auction and then sell it the following week at another auction. Only ever made a loss on one car. What a car will make at auction really depends on location and timing as much as the metal itself. It's the fact that the valuation is based on what The Glass guide would indicate as a retail value. The Glass guide states the retail, private, part ex and trade value. I know the price of cars fluctuates but It's the trade value we should be interested in. After all, in the event of default, we don't have a car dealership to sell the cars to realise the retail value... They would be sold at trade value.
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Post by caveman38 on Apr 25, 2016 7:30:02 GMT
Although I have questioned the security of these loans. I have however got some of these ie. Asset Exchange and Stocking Portfolios. I should have asked before, but now would like to know. As the renewable option is always available, assuming you don't want to renew. Is the money after the 6 month duration available for repayment and where does it come from?
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littleoldlady
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Post by littleoldlady on Apr 25, 2016 7:43:47 GMT
The harder issue with these loans is the ethics in ultimately lending people money to buy relatively high priced cars at such APR's. The high APR doesn't concern me, that will simply be risk based modelling by AE, its the higher priced cars than is necessarily needed by someone with a poor credit record that seems slightly wrong.
I really struggled with this myself. We lenders are fortunate that our problem is trying to get a decent return on our savings without taking too much risk. Most people are in debt. I suppose that many of these car loan borrowers need a car to get to work and cannot get credit cheaply so either have to pay these exorbitant rates or go on the dole. After much heart searching I have decided to invest. Long term the solution is financial education being taught in schools. Young peoples' attitude to debt fills me with horror. Calling University funding "student debt" is particularly stupid as it is not debt in any meaningful sense but rather deferred taxation and should be called that. Calling it debt just adds to young peoples' perception that debt is normal. But then I am an old fogey.
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SteveT
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Post by SteveT on Apr 25, 2016 8:08:02 GMT
Although I have questioned the security of these loans. I have however got some of these ie. Asset Exchange and Stocking Portfolios. I should have asked before, but now would like to know. As the renewable option is always available, assuming you don't want to renew. Is the money after the 6 month duration available for repayment and where does it come from? Yes. The way renewals happen on MT is that the old loan is repaid (to all lenders) and the new loan is listed as a Pending Loan with a new loan number. Those wishing to roll over their stakes are pre-allocated parts in the new loan before the loan is launched, with any remaining availability then open for others to bid for.
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