james
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Post by james on Feb 7, 2017 0:34:15 GMT
It's the only one where the deal has an explicit time period.
The standard terms have a provision for giving notice but that is subject to Ablrate's acceptance and its usual business practices, as it is also for this one. Lenders have been given guidance that they won't lose out on secondary market deals if it happens.
The sort of thing that satisfies both is those lenders who bought on the secondary market getting the yield they were told they would get (raises borrower cost) but the borrower is allowed to do it with less notice (decreases borrower cost).
There's little reason for Ablrate or borrower to be unhappy or unable to do this. Remember that the loan terms for this one are 5% up front and 1% a month for Ablrate and 14% a year for lenders.* Six months of that and whatever else can cover a lot of making sure buyers keep the rate they were told they would get.
Even if Ablrate had to cover the whole cost out of their one percent a month I doubt that the cost on this loan would get as high as one month's one percent on the whole loan. Most doesn't get traded on the secondary market and the loan is amortising so the longer it lasts, the cheaper it gets. Wildish guess but probably not wildly wrong about the impact.
And of course Ablrate knows these things better than I do, so they also know it's not going to be painful to do.
It's not one of the things that causes me concern.
*And it's so nice to be told this, so you can take into account the risk effect of the actual costs for the borrower and know that the platform isn't using a ridiculously disadvantageous split of risk and reward. See S***** S***** for the exact opposite.
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SteveT
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Post by SteveT on Feb 7, 2017 7:28:51 GMT
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. It's essentially the same as the SM on Funding Circle, only FC quote "Buyer Rate" rather than a proper AER. The Funding Secure SM also operates the same way, but is skewed towards discounts because their loans only pay interest at term (so accrued interest can span 4-5 months rather than just days on FC and Ablrate). It beats me why people consider the Ablrate SM more complicated than the FC one. Perhaps it's simply that they're used to seeing "par" expressed as 0%, as opposed to 100% on Ablrate.
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blender
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Post by blender on Feb 7, 2017 9:55:20 GMT
It's the only one where the deal has an explicit time period. The standard terms have a provision for giving notice but that is subject to Ablrate's acceptance and its usual business practices, as it is also for this one. Lenders have been given guidance that they won't lose out on secondary market deals if it happens. ... Yes, it is the only one I have which has a prepayment arrangement - to pay a minimum of 6 months' interest. However, since that is in the agreement I read it as a right to prepay - not subject to the further agreement by Ablrate. Especially at those rates of approx 26% pa as well as 5% up front. OK, Ablrate might (and I have not trawled through the T&Cs) consider compensating SM premium purchasers on a fixed term loan if Ablrate, for some reason, allow prepayment. But when it is in the contract, I take the view that a lender on this platform should read and understand the loan terms before buying. But maybe that is because I am not a fan of the compensation culture (yes I know loan 58 is all about the compensation culture). On FC, which is for 'consumer lenders' or 'investors', you can buy at a 3% premium and find that lost in a prepayment of the loan - though the 3% limit is in part to limit that damage. FC will not compensate a lender for SM loss. FC use this notion of buyer rate, rather than AER, imo so that par sales are at the interest rate, and you do not get the difference, which can favour the seller if the buyer does not understand. I do think the Ablrate SM is good, but it is not dumbed down and not suitable for those who will not take the time to learn it before trading and do not read the loan terms before buying. On the Ablrate SM you get the best deal available, if you decide to buy. Not always so elsewhere.
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stevio
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Post by stevio on Feb 8, 2017 10:12:02 GMT
More generally, the AER assumes you hold the loan to term. If you pay a premium and do not hold to term (sell at par, say,) then that AER is lower. A discount is always a good thing, however. The other point is that the AER does not take account of income tax. If you pay a premium you swap cash for an increased taxable income, at your marginal rate. So if you see a good AER at a discount that's all good. If you see a good AER at a premium, think on't. (Oldnick's advice still applies of course.) I think I see what you mean, you need to factor IT you will pay on AER rate - but would you not have to do that with any investment, this platform or elsewhere?
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blender
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Post by blender on Feb 8, 2017 10:48:52 GMT
More generally, the AER assumes you hold the loan to term. If you pay a premium and do not hold to term (sell at par, say,) then that AER is lower. A discount is always a good thing, however. The other point is that the AER does not take account of income tax. If you pay a premium you swap cash for an increased taxable income, at your marginal rate. So if you see a good AER at a discount that's all good. If you see a good AER at a premium, think on't. (Oldnick's advice still applies of course.) I think I see what you mean, you need to factor IT you will pay on AER rate - but would you not have to do that with any investment, this platform or elsewhere? An example. Say, you want to achieve 11% AER on your lending before losses and tax. Suppose you buy a loan at par on the SM and the AER is 11%, while the borrower interest rate is 10% (to use round numbers). You get the AER of 11% and pay income tax on the interest repayments at 10%, at your marginal income tax rate. Same as buying on the PM. Now assume you pay a high premium on the SM and the AER is still 11%, while the borrower interest rate is 16%. You get the AER of 11% as before but now you pay income tax on interest repayments at 16%, at your marginal tax rate. Either way, if the loan runs to plan you get the AER advertised before tax. If you don't pay income tax then there is no tax problem. But by paying that premium you have swapped your cash for a greater income stream which is taxable. If you pay income tax then the return before tax is the same in both cases, but the return after tax is not. If you are a higher rate tax payer, then the value of that future additional income stream is much reduced, and so is your return after tax. It is the same on FC and other platforms because it depends on the lenders tax circumstances, not on the platform.
(I ignore the current 'accrued interest purchased' tax-accounting issue in this.)
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Post by ablrate on Feb 8, 2017 11:10:00 GMT
Its an interesting discussion... We are very keen to provide more info about companies on the SM... from a risk pricing point of view and a return point of view. Si be assured we are looking at this and adding to the list. We have a few roll outs we are working on unrelated to the SM... but we are keen to get on top of it and will be hiring further coders.
Regards Ablrate
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stevio
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Post by stevio on Feb 8, 2017 11:53:00 GMT
I think I see what you mean, you need to factor IT you will pay on AER rate - but would you not have to do that with any investment, this platform or elsewhere? An example. Say, you want to achieve 11% AER on your lending before losses and tax. Suppose you buy a loan at par on the SM and the AER is 11%, while the borrower interest rate is 10% (to use round numbers). You get the AER of 11% and pay income tax on the interest repayments at 10%, at your marginal income tax rate. Same as buying on the PM. Now assume you pay a high premium on the SM and the AER is still 11%, while the borrower interest rate is 16%. You get the AER of 11% as before but now you pay income tax on interest repayments at 16%, at your marginal tax rate. Either way, if the loan runs to plan you get the AER advertised before tax. If you don't pay income tax then there is no tax problem. But by paying that premium you have swapped your cash for a greater income stream which is taxable. If you pay income tax then the return before tax is the same in both cases, but the return after tax is not. If you are a higher rate tax payer, then the value of that future additional income stream is much reduced, and so is your return after tax. It is the same on FC and other platforms because it depends on the lenders tax circumstances, not on the platform.
(I ignore the current 'accrued interest purchased' tax-accounting issue in this.)
Thanks for the great explanation I am looking at 12%+ AER loans, so the difference in AER to actual Interest Rate (max 16% on AB currently) should only vary from 0-4%, so not much at basic rate tax Although, I will look at the reverse scenario of buying at a discount (unless your so kind you would give an example of that) as there are likely tax breaks there?
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blender
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Post by blender on Feb 8, 2017 13:59:00 GMT
A discount is always good, both for income tax and for cash flow. As a general rule, if a deal is done and there is a cash element to the transaction, try to make sure that you receive the cash rather than give it. So for a given AER and all other things being equal, the deal with the discount is the better one. ( I am not helping my sales on the SM here. Doh!)
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registerme
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Post by registerme on Feb 8, 2017 14:03:19 GMT
( I am not helping my sales on the SM here. Doh!)
Perhaps not, but you are getting a laugh out of me which is always good value. Here, have an internet cookie by way of thanks .
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blender
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Post by blender on Feb 8, 2017 14:23:41 GMT
( I am not helping my sales on the SM here. Doh!)
Perhaps not, but you are getting a laugh out of me which is always good value. Here, have an internet cookie by way of thanks . I hope the forum is a place where we try to assist one another, and improve the platform offerings. There are plenty of other buyers. Looking at the Ablrate SM just now I see that there is no offer under 100.4%. That looks very healthy for the platform, though it makes getting a discount harder in practice. Bids have to be funded.
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blender
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Post by blender on Feb 10, 2017 15:24:17 GMT
For those with time for an advanced course on haggling within the Ablrate marketplace, this is a favourite guide. For prophet, read forum member; for beard read loan; for the numbers, read a percentage premium on the deal:
www.epicure.demon.co.uk/hagglingscene.html
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SteveT
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Post by SteveT on Feb 10, 2017 15:45:37 GMT
For those with time for an advanced course on haggling within the Ablrate marketplace, this is a favourite guide. For prophet, read forum member; for beard read loan; for the numbers, read a percentage premium on the deal:
www.epicure.demon.co.uk/hagglingscene.html
... and for smallest unit of barter read not an entire shekel but as little as 0.001% (!?!)
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elliotn
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Post by elliotn on Feb 10, 2017 15:53:46 GMT
I made a bid today but the AER was not visible, I had to edit it afterwards from the Dashboard to get the rate I was willing to pay - does that sound right?
Also, I posted a bid for an amortising loan that would not execute at the time. The existing offer 350 at 101.8 and 50 at 102 so I bid at 102 to cover both loan parts expecting the order to be filled at a blended rate.
It looks like my bid was snaffled by a different loan holder for the full 102 as the original offers remained available. I will now offer separate bids but was surprised not to be matched to the available offers at the lowest rate first.
How long do existing trades normally take to match where Execute is not available or, assuming that depends on repayment date (what days can you not execute on?), how could someone else swoop down on me in the meantime?
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blender
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Post by blender on Feb 10, 2017 16:04:08 GMT
To take up an existing offer, you do not make a bid. You buy the total amount offered by putting just £400 in the buy box, and it will buy you £400 principal, taking best offers, and calculate the total cost for you, £400 plus premium plus interest to buy. You only use the bid box if what is listed in offers does not suit you, that is you want a better deal than those offered. This confused me at the start, but when you learn it, it is a very flexible system.
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elliotn
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Post by elliotn on Feb 10, 2017 16:16:35 GMT
Thank you. Yes, until then I had executed all SM purchases as buys which was not available for this amortising loan. I don't know the rule for when buys are paused so left a bid instead over the loan repayment date. However, someone could certainly accept my offer...twice as I tried to go back in for the lower rate!!
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