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Post by blanik on Mar 23, 2016 10:02:03 GMT
HI,
I received an early repayment e-mail, but it was for interest only, so I had a look at the repayment profile for the loan.
Roughly £200 lent in 5 year market June 2015 at 6.8%
Total Repayments of about £4 per month July 2015 to October 2016
Then
Nov 2016 - £24
Dec 2016 - £58
Jan 2017 - £58
Feb 2017 - £19
p.s. The extra interest only payment was for 6p today.
I know that lenders can repay the loan early, but didn't know they could structure their future payments to do the same. So in effect this 5 year loan is really an 20 month one.
No complaints, just curious as to the reason.
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Post by westonkevRS on Mar 23, 2016 18:36:01 GMT
Hi blanik, Borrowers cannot restructure their loans and remain with standard lenders. Any rearrangement causes the Provision Fund to step in and the lender has a full redemption. That said, your talking about future payments changes which is even odder. I can only suggest you contact Customer Services so they can look at the exact contract and explain. I'm sure there is a misunderstanding somewhere. If you want an amateur to look, you can DM me the contract ID and I'll take a look. Kevin. |
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Post by blanik on Apr 1, 2016 14:41:50 GMT
Just got another e-mail about an early INTEREST repayment.
This time looking at the repayment profile on this 5 year loan started 30/4/15,
The 25p a month repayment is constant until
1/4/16 - extra 3p
then continues at 25p / month until
10/11/17 - when it is £4.14 which looks like a termination payment on the loan.
I'll drop an e-mail to customer services and post the reply here.
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Post by westonkevRS on Apr 2, 2016 9:23:01 GMT
HI, I received an early repayment e-mail, but it was for interest only, so I had a look at the repayment profile for the loan. Roughly £200 lent in 5 year market June 2015 at 6.8% Total Repayments of about £4 per month July 2015 to October 2016 Then Nov 2016 - £24 Dec 2016 - £58 Jan 2017 - £58 Feb 2017 - £19 p.s. The extra interest only payment was for 6p today. I know that lenders can repay the loan early, but didn't know they could structure their future payments to do the same. So in effect this 5 year loan is really an 20 month one. No complaints, just curious as to the reason. Hi there, sorry for the delay. The reason the repayment schedule has gone strange is because in mid-March the customer made an overpayment on the loan of £2,000. Customers have the choice for this to simply lower monthly repayments, which would probably have kept the payments equal over the same term just lower monthly £s. In this case the customer chose to maintain the same payments and reduce the term. This causes quite a complicated restructure of lender contracts, and why you've ended up with uneven payments. I'm not sophisticated enough to work out exactly what the platform does to each lenders contracts. Frustrating, but the UK environment for loans is very preferable. Not only the lowest rates in near term history for prime borrowers, but they have flexibility to cancel in the cooling off period and make fee free extra payments at will. I suppose it's a good thing really. Kevin.
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Post by westonkevRS on Apr 6, 2016 7:52:08 GMT
I've just had a discussion with our IT genius, and so can provide a little bit more detail.
An over-payment (not a full redemption) does have a strange impact on the loans rescheduled because it isn't a case of simply pro-rata all lending contracts down by the same percentage. Contracts are repaid based on the highest interest rates, which is within the T&Cs. So if a 5-year loan is made up of contracts ranging from 5.8% to 6.2%, then the 6.2% loans will be fully repaid first and the lower interest contract remain - although they will have to change when if term is reduced by borrower choice. This is one reason why higher earning contracts are likely to be redeemed early, because they are targeted by partial redemptions (more than lower earning contracts) as well as full redemptions.
> For loans over payments but keeping the same loan end date, the lower AER contracts remaining will mostly simply remain (one will be caught in the middle having a partial payment back).
> However where the customer is reducing the term (keeping the same monthly repayment) the calculation gets very complicated, as fewer contracts are then bunched-up to create higher monthly repayments than before was expected for these fewer contracts to keep the borrower payment equal as before. And due to a shift of interest and capital within each payment, this does lead to unequal repayments thereon-in within some lender contracts.
Kevin.
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spiral
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Post by spiral on Apr 6, 2016 11:34:05 GMT
So if a 5-year loan is made up of contracts ranging from 5.8% to 6.2%, then the 6.2% loans will be fully repaid first and the lower interest contract remain Interesting, personally I would have thought that this should be the other way round. My thought being that the risk of a loan defaulting after a partial repayment does exist. The person that was being paid the highest rate and therefore was being rewarded more generously for taking that risk, is now the person that is no longer burdened with that risk. Of course not an issue if the PF holds up.
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investibod
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Post by investibod on Apr 6, 2016 15:50:59 GMT
So if a 5-year loan is made up of contracts ranging from 5.8% to 6.2%, then the 6.2% loans will be fully repaid first and the lower interest contract remain Interesting, personally I would have thought that this should be the other way round. My thought being that the risk of a loan defaulting after a partial repayment does exist. The person that was being paid the highest rate and therefore was being rewarded more generously for taking that risk, is now the person that is no longer burdened with that risk. Of course not an issue if the PF holds up. From the borrowers point of view I can see why they would want the situation as Kev states. If you owed some money at 5.8% and some at 6.2%, which would you rather pay off first?
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spiral
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Post by spiral on Apr 6, 2016 16:59:39 GMT
From the borrowers point of view I can see why they would want the situation as Kev states. If you owed some money at 5.8% and some at 6.2%, which would you rather pay off first? I agree, the point I made though is as a lender, if you and I are in the same loan, you at 5.8%, me at 6.3%, your 5.8% carries a greater risk of default than my 6.3% which doesn't seem fair on you, especially as I have allowed for greater risk in my rate.
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Post by westonkevRS on Apr 6, 2016 17:20:26 GMT
From the borrowers point of view I can see why they would want the situation as Kev states. If you owed some money at 5.8% and some at 6.2%, which would you rather pay off first? I agree, the point I made though is as a lender, if you and I are in the same loan, you at 5.8%, me at 6.3%, your 5.8% carries a greater risk of default than my 6.3% which doesn't seem fair on you, especially as I have allowed for greater risk in my rate. I'm not sure I agree. As a general rule a customer that makes over payments is lower risk. They have some spare capital and obviously the intention to fully clear the loan. Therefore their APR should be lower, and therefore be rewarded with the lower rate lender contracts. Kevin.
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Post by Deleted on Apr 6, 2016 17:34:35 GMT
It makes perfect sense in this case that, since the option for early repayment belongs to the borrower, then the choice of loan to repay should be optimal to the borrower
ie, most expensive first
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sl75
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Post by sl75 on Apr 6, 2016 23:35:49 GMT
It makes perfect sense in this case that, since the option for early repayment belongs to the borrower, then the choice of loan to repay should be optimal to the borrower ie, most expensive first This is also the rule by which credit cards are obliged to operate...
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spiral
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Post by spiral on Apr 7, 2016 8:03:22 GMT
As a general rule a customer that makes over payments is lower risk. And I agree with that. The point I am trying to make though is that someone that is in a loan (no matter how small the risk) has a greater risk than someone that is not in the loan and this method of repaying the higher rate, burdens the lower rate holder with this risk. I can see all the reasons why it is done the way it is (and as a borrower, this is what I'd want) but from a lenders perspective it appears to distort the risk to people that offer lower rates. Simplistic e.g. 10K loan funded by 4 people 2.5K each at 5.9,6.0,6.1 and 6.2%. 5K paid back early takes out the 6.2 and 6.1% rate. Borrower loses their job and can no longer repay loan. The 2 losses occur at the 5.9 and 6.0% rate. The money for the 6.1 and 6.2 has already been paid back. All academic though so long as the PF holds up. 
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alender
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Post by alender on Apr 7, 2016 8:49:25 GMT
From my understanding if the PF failed all loans are pooled and shared out equally so from a default perspective I am not sure it makes much difference. It would make no difference if that particular borrower defaulted or other borrowers defaulted for individual investors. However it is unlikely the same person will make a repayment on one loan and default on another in a short period of time.
The only way you would gain from this if your loan was repaid before the PF fails regardless of whether that borrower had other loans and you decide not to put the money back into RS.
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Post by Deleted on Apr 7, 2016 9:29:50 GMT
Basically, what we are talking about here is a well known issue with personal lending where early repayments are possible
Rates go up? Lenders are stuck with the lower rate loans they already made.
Rates go down? Borrowers refinance and lenders are forced to take lower rates. And of course borrowers will refinance their most expensive loans first.
It's the nature of the beast, always has been with this type of lending.
The lenders risk/return calculations should take this into account.
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sl75
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Post by sl75 on Apr 7, 2016 10:41:26 GMT
And I agree with that. The point I am trying to make though is that someone that is in a loan (no matter how small the risk) has a greater risk than someone that is not in the loan and this method of repaying the higher rate, burdens the lower rate holder with this risk. Unless they re-invest it (taking on a new risk) the one who has been repaid is getting a 0% rate on that 0% risk, so the "greater return for greater risk" principle still applies here. Put another way, the one who had previously been receiving a higher interest rate has put themselves at a higher risk of having their money thrown back at them earlier than they were expecting. In practice, due to the operation of the provision fund, early repayment and default are effectively the same risk (you get money back and no longer earn interest on it going forwards) until such a point as a resolution event is called.
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