blender
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Post by blender on Feb 6, 2017 14:02:52 GMT
Usually Ablrate loans cannot be repaid early, but 58 has a prepayment clause which guarantees 6 months' interest. And if I were paying 14% to lenders plus 1% per month to the platform, then I would not want to keep it longer than necessary.
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jamesc
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Post by jamesc on Feb 6, 2017 14:24:54 GMT
I am new to ABL and thought I understood but I am clearly missing something Loan 1000054 a 16% loan has bids at par however the AER is 17%+ whereas I thought it would be 16%. Is there an element of accrued or were these issued on a premium or something ??
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james
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Post by james on Feb 6, 2017 14:27:42 GMT
If you have a loan starting 28Feb16 and maturing 28Feb19 and buy it at 101 ... If you buy it on :
28Feb16 that is a 12.683% return 12Mar16 that is a 12.236% return 28Mar16 that is a 12.231% return 28Feb17 that is a 12.057% return 28Feb18 that is an 11.505% returnSo I am guessing 12.683% includes compounding interest over THREE years? Why is the return at the start of the final year less than the interest rate of 12% you would receive for that year? The return at the start of the last year is lower because you are paying a 1% premium to buy. With three years to go the effect of the premium is spread out over three years. With one year to go only over one year. You're paying 101 to buy the interest on 100. The longer the remaining term, the closer that gets to being the same as if you'd paid 100.
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blender
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Post by blender on Feb 6, 2017 15:13:09 GMT
I am new to ABL and thought I understood but I am clearly missing something Loan 1000054 a 16% loan has bids at par however the AER is 17%+ whereas I thought it would be 16%. Is there an element of accrued or were these issued on a premium or something ?? Yes that is a puzzle. I know it is just a difference in definitions between the annual interest rate paid by a borrower, and the AER experienced by a lender over the term of a loan from the point of purchase - if etc etc etc. But for a numerical explanation you will need someone more clever.
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blender
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Post by blender on Feb 6, 2017 15:21:27 GMT
I've just noticed that someone is bidding at a higher premium than the best offer on 58. Only £10 but a strange market. It reminds me of the gourd haggling scene in The life of Brian .
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Post by GSV3MIaC on Feb 6, 2017 15:27:58 GMT
(re 'borrower can't repay early')
That's a rarity among P2P lenders then, even to SMEs .. can't think of too many others where early repayment is not allowed.
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james
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Post by james on Feb 6, 2017 16:07:45 GMT
I've just noticed that someone is bidding at a higher premium than the best offer on 58. Only £10 but a strange market. It reminds me of the gourd haggling scene in The life of Brian . That's normal and what should be expected. The prospective buyer is asking for someone to sell to them at a yield of 14.807% (100.200% of capital). The best offer to sell is at 14.206% (101.170% of capital). So the bid is saying I want a higher rate from the seller than the best offer being made. At least, that's the best I see on that one at the moment, it could have changed since you looked. If you see a lower yield in the bids than the offers you can make a profit from buying enough from the offer side at a higher yield to sell to the lower yielding bids. I've done it occasionally, making a grand 20p last time. Ablrate have doing this automatically on their to do list. It's easier to understand this by looking at the capital prices. The difference between 101.270 and 100.200 is what you lose on the deal by doing both the buy and the sell. So immediate 1.070% capital loss on however much is available at those two prices. So nobody is going to do the buy/sell pair. If they were the other way around it'd be a profit. But someone who already owns the loan might be tempted to sell just because the deal is instant. Might think that beats waiting for a buyer. I've sometimes sold to decent bids. Pairing deals like this is called arbitrage. Very common way to reduce price differences for the same thing across different markets as the people doing the deals end up pushing the prices everywhere to be close to the same. In the Ablrate case it's paying someone a small profit for doing a bit of work that the bidder and offerer could have done themselves. If it wasn't for the hassle of being made to cancel all of your offers to sell on an amortising loan before you're allowed to buy I'd do these deals every time I noticed them. As it is the time cost can make it not worth the effort on an amortising loan.
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david42
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Post by david42 on Feb 6, 2017 16:39:38 GMT
I am new to ABL and thought I understood but I am clearly missing something Loan 1000054 a 16% loan has bids at par however the AER is 17%+ whereas I thought it would be 16%. Is there an element of accrued or were these issued on a premium or something ?? If a loan paid 16% interest at the end of every year, then then the AER would be 16%. But a loan that pays interest monthly is slightly more valuable and the Annual Equivalent Rate (AER) assumes you can re-invest those montly interest at the same rate until the end of the year, so the AER is slightly higher than 16%.
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blender
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Post by blender on Feb 6, 2017 16:41:02 GMT
Doh! Thank you James. I had just missed the position of the decimal point and misread the offer. I do know how it works, just didn't read it right. Faith in Ablrate marketplace restored. Best if I stay in today and ask mummy to keep an eye on me.
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james
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Post by james on Feb 6, 2017 16:44:36 GMT
Look on the bright side. You didn't jump in to make a quick profit in the buy/sell pair and really make a loss instead.
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n
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Yet another Nick
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Post by n on Feb 6, 2017 16:47:48 GMT
This is why I hate non-par SMs What is the AER of a twelve month interest only loan paying 1% a month purchased on the day of issue? What is it six months after issue? How do those numbers change if it is amortising? You're going to need help to get the right answers, whether the price is par or not. You are correct - I would need help. My 'hate' is based on my gut feeling that I could easily be being ripped off due to my lack of intimate knowledge of accounting and the tax system, fields in which you are clearly an expert. Hence I only ever buy on the SM to get interest re-invested at the best rate on the day, only risking being 'taken' for a few pence. With a par only SM like MT & SS I feel much safer because there is no latitude for traders to make a margin - I feel less like a yokel with a bag of beans in a big city on market day. I can concentrate purely on the risk in the loan itself (and the platform).
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blender
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Post by blender on Feb 6, 2017 17:05:53 GMT
Look on the bright side. You didn't jump in to make a quick profit in the buy/sell pair and really make a loss instead. I can't sell my 58 yet. The buyer might get my 'instant' returns.
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Post by ablrateandy on Feb 6, 2017 18:56:54 GMT
Basically, the more often you receive interest, the higher the AER. So, a 12pc coupon paid annually only gives you the opportunity to reinvest your £12 interest at the end of a year. However if it is paid monthly, that first pound can be re-invested and itself earn interest...and the second pound etc etc...
So the AER on a 12pc paying monthly is 12.683pc because each of your 1pc interest payments gets the potential to be re-invested.
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james
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Post by james on Feb 6, 2017 20:44:07 GMT
You are correct - I would need help. My 'hate' is based on my gut feeling that I could easily be being ripped off due to my lack of intimate knowledge of accounting and the tax system, fields in which you are clearly an expert. Hence I only ever buy on the SM to get interest re-invested at the best rate on the day, only risking being 'taken' for a few pence. With a par only SM like MT & SS I feel much safer because there is no latitude for traders to make a margin - I feel less like a yokel with a bag of beans in a big city on market day. I can concentrate purely on the risk in the loan itself (and the platform). That's exactly what you and most other people should be doing, whether buying initially to get invested or reinvesting interest, paying attention to the yield/AER and the risks. If you want to sell sometime, I recommend doing it in chunks of no more than a few hundred Pounds and at a markup that gives a buyer whatever yield/AER you think is reasonable or around what other people making offers to sell are doing. If you want to sell fast, selling at par/100% will normally achieve it, though it'll cost you a little potential gain. I'd quite often pay money in just to buy at par even if I don't really want it, then take my time selling at a bit of a premium. I doubt I'm the only one.
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Post by dan1 on Feb 7, 2017 0:07:26 GMT
Is 58 the only loan allowing early repayment. Would I be right in thinking that paying for 58 at a premium on the SM adds an additional risk of reduced (or negative!) aer in the event of early repayment. I guess we rely on Ablrate to do the right thing in such a case but their under no obligation to. This really is the most sophisticated SM for sure, but it's a challenge to get the site to realise the true potential of the market - it's a bit laborious to navigate at present.
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