agent69
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Post by agent69 on Apr 3, 2017 18:04:10 GMT
£179k of borrowers offers at 3.4%.
Who said the market was rigged?
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Post by graham34 on Apr 4, 2017 6:50:33 GMT
Is there any evidence that the better the rate achieved in the "5 year" market the sooner it is likely to be paid back?
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Post by Deleted on Apr 4, 2017 8:13:45 GMT
Put it this way, if you were a borrower, and you had one loan at 4% and one at 8%, and you had the funds to pay off one early, which one would you choose?
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adrianc
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Post by adrianc on Apr 4, 2017 9:02:55 GMT
Put it this way, if you were a borrower, and you had one loan at 4% and one at 8%, and you had the funds to pay off one early, which one would you choose? Which assumes they're the same borrower... Who is more likely to pay back sooner - somebody who's low enough risk to be eligible for a lower rate through a lower PF contribution, or somebody who's higher risk so gets their PF contrib hiked? I'm not sure there's enough information for us to have a good guess at correlation between rate and early repayment.
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Post by Deleted on Apr 4, 2017 9:16:30 GMT
I'm not sure there's enough information for us to have a good guess at correlation between rate and early repayment. For RS specifically, maybe not But more generally, this is a well known phenomenon when it comes to lending with the option of early repayment. Rates drop, and borrowers who can refinance more expensive debt, do so. Rates rise, and borrowers cling to their low-cost financing as long as possible. And if a borrower has multiple loans, they will refinance the most expensive first. Its not rocket science.
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spiral
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Post by spiral on Apr 4, 2017 10:23:21 GMT
I've just tried to analyse my loan book. Taking all contracts repaid and assuming that those still open will run to term, there is no evidence of this. If however I assume that those still open will only run for a further 2/3 of the remaining contract (Used because about 1/3 of loans are repaid early) which is probably a better fit, I get a result of about 10 days earlier repayment per 0.1% increase in rate. (Graph attached) There are 2 thoughts that come to mind in addition to those already mentioned in posts above. 1. As RS don't identify defaults from early repayments, it is probably safe to assume that more defaults occur at higher rates and therefore would appear to be early repayments in any analysis. 2. Kev had mentioned previously (whilst still an employee) that partial repayments clear the higher rate contracts first. So in this analysis, I may have a repaid contract that is still an open loan for someone else.
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Post by Deleted on Apr 4, 2017 11:14:29 GMT
2. Kev had mentioned previously (whilst still an employee) that partial repayments clear the higher rate contracts first. So in this analysis, I may have a repaid contract that is still an open loan for someone else. If that was the discussion I remember, then I believe someone even mentioned that it is a legal requirement to do it in this order Not sure if thats 100% correct, but it does make sense - since the option to repay is effectively owned by the borrower, then any repayment should be to the borrowers advantage - ie most expensive first
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spiral
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Post by spiral on Apr 4, 2017 13:16:48 GMT
If that was the discussion I remember, then I believe someone even mentioned that it is a legal requirement to do it in this order Not sure if thats 100% correct, but it does make sense - since the option to repay is effectively owned by the borrower, then any repayment should be to the borrowers advantage - ie most expensive first Except my understanding is that it's RS that get the benefit. I believe that the borrower gets offered a loan at x% and RS tries to match this in the market. So if they offer a loan out at 6%+ fees and match rates at 5.4,5.5 and 5.6 in the market, the borrower gets no benefit when they make an early repayment because their loan is still 6%. It's RS that benefit from the increased margin by paying off the 5.6% first.
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Post by dualinvestor on Apr 5, 2017 6:19:06 GMT
2. Kev had mentioned previously (whilst still an employee) that partial repayments clear the higher rate contracts first. So in this analysis, I may have a repaid contract that is still an open loan for someone else. If that was the discussion I remember, then I believe someone even mentioned that it is a legal requirement to do it in this order Not sure if thats 100% correct, but it does make sense - since the option to repay is effectively owned by the borrower, then any repayment should be to the borrowers advantage - ie most expensive first There was either a court case or controversy that resulted in government action some years ago where credit card companies became compelled to use repayments against the highest interest portion of any debt (e.g. default interest), I think this may have been extended to banks, but I am unsure whether P2P platforms, as part of consumer credit legislation, are covered by these rules
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Post by Deleted on Apr 5, 2017 12:25:33 GMT
Except my understanding is that it's RS that get the benefit. Frankly, this is not relevant from the lenders perspective. A lender will face this conundrum whenever they lend with the option of early repayment. The highest rates are always likeliest to get refinanced first. Its simply rational borrower behaviour. The nature of the beast. Industry standard. If a lender can't handle that, then they need to think about a different form of lending with a guaranteed duration.
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agent69
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Post by agent69 on Apr 14, 2017 17:38:44 GMT
£179k of borrowers offers at 3.4%. Who said the market was rigged? Last match at 3.2%. Any astute investors out there managed to jump on this little doozy?
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oldgrumpy
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Post by oldgrumpy on May 5, 2017 7:59:33 GMT
£179k of borrowers offers at 3.4%. Who said the market was rigged? Last match at 3.2%. Any astute investors out there managed to jump on this little doozy? RS are telling borrowers the rate to lend "right now" is 3.1% That is because one deluded person offered a hundred or so at that rate despite market rate being 4.2% and nothing else is being offered below 4.1%. Now others are following suit. I consider that to be unfair and sly of RS to naive new lenders. Attachments:
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Post by WestonKevTMP on May 5, 2017 9:57:43 GMT
If that was the discussion I remember, then I believe someone even mentioned that it is a legal requirement to do it in this order Not sure if thats 100% correct, but it does make sense - since the option to repay is effectively owned by the borrower, then any repayment should be to the borrowers advantage - ie most expensive first There was either a court case or controversy that resulted in government action some years ago where credit card companies became compelled to use repayments against the highest interest portion of any debt (e.g. default interest), I think this may have been extended to banks, but I am unsure whether P2P platforms, as part of consumer credit legislation, are covered by these rules The rules on payment allocation were specifically for credit and store cards; www.google.co.uk/url?sa=t&source=web&rct=j&url=http://www.theukcardsassociation.org.uk/wm_documents/credit_and_store_cards_review_-_the_uk_cards_association.pdf&ved=0ahUKEwjAoLicvdjTAhWhA5oKHT2rCaQQFghMMAQ&usg=AFQjCNExtDZTR0E6KGUgsI8I_l1P9Q-SrA&sig2=jwCFwvl4AlPsruJEwpC-TQIt didn't cover loans, probably because the concept of a loan being made up of different APRs merged into a single APR didn't exist. And in a way it still doesn't today, as the borrower pays a single rate. I also think it's right that RateSetter benefits from any early repayment. Firstly because early repayment expectations is baked into the profitability of the loan and hence their ability to offer loans at the rates they do (and lenders the high rates achieved), secondly if a lender has match a loan at an AER they are happy with then what's changed.... Kevin.
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09dolphin
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Post by 09dolphin on May 23, 2017 17:34:36 GMT
Frankly I think people are quite stupid lending at these rates. They would be better using an interest paying bank which pays 3%.
However if they don't want their money to retain it's value in terms of inflation who am I to complain
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gnasher
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Post by gnasher on May 25, 2017 3:41:20 GMT
.... and now for your entertainment we have 2.9%, the same as rolling, is this a record? one person puts on £47 at 3% with nothing else below 3.6% and then only chicken feed below 4%, so RS addds 1263 MR orders totalling £117,854 at 2.9% Attachments:
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