jhma
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Post by jhma on Jul 28, 2014 13:34:27 GMT
The RS website says:
‘You commit to lend for one year. At the end of the one year term, you are repaid all the capital and interest in a lump sum’.
After 20 months lending on RS, 56 of my ‘one year bond’ contracts have repaid. Of these:
24: ran to full term
4: ran more than 9 months
5: ran 6-9 months
12: ran 3-6 months
9: ran less than 3 months
2: repaid within 5 days
So only half of the ‘one year bonds’ made it to nine months or more. Excluding the two that were almost immediately repaid (which would otherwise make the stats worse):
- Average (mean) length of term: 245 days
- Median length of term: 298 days
Is this typical for others?
I have not noted any other patterns (e.g. with time or against interest rates).
I’m not complaining or criticizing but just observing and wondering whether the website description should perhaps be adjusted?
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markr
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Post by markr on Jul 28, 2014 13:45:54 GMT
I believe it is a legal requirement to allow borrowers to repay their loans early and without penalty. Even though RS market is anonymous, your funds are used to form loans to specific borrowers, so if your borrower chooses to repay early, you get your funds and accrued interest back early. The ones that repaid within 5 days were probably ones rejected in the cooling off period, and you'll have received no interest at all.
This is true on all of RS's markets, even the monthly. I'm not sure about the 1 year market, but the 3 and 5 years include loans whose contracted periods are less than the market term (e.g., RS offers borrowers 4 year loans, but these are lent using funds in the 5 year market, so even without early repayments these ones won't make it to the "advertised" term).
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pikestaff
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Post by pikestaff on Jul 28, 2014 14:11:41 GMT
3 reasons for early repayment:
1. The borrower chooses to repay early. (There is a cooling off period for consumer loans which may account for the 2 which repaid within 5 days.)
2. The borrower defaults, which triggers early repayment by the provision fund.
3. The loan you bought was second-hand (bought from someone withdrawing funds) and had less than 1 year to run when you bought it.
Edit: Posted before I saw markr's post.
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markr
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Post by markr on Jul 28, 2014 14:51:09 GMT
I've just had a closer look. The 1 year bond is apparently used to fund loans with durations from 1 to 2 years. Any loan with a shorter term than 1 year is funded from the monthly market (which presumably includes previously longer term loans that are being sold by their owners?) For loans longer than 12 months, presumably they are refinanced to repay your bond (raising the question what happens if there aren't sufficient offered funds to do that?)
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jhma
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Post by jhma on Jul 28, 2014 18:14:00 GMT
Interesting comments ! After calculating the stats I was surprised that such a high proportion of my loans were repaying early rather than the few I was expecting. Not that I find this a problem . Based on the historical performance I now use the 'one year bond' market to park funds for the mid term with the experience (so far holding true) that for whatever reason around half of the invested capital may be returned by about nine months rather than held for a full year.  |
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Post by geoffrey on Jul 29, 2014 7:57:59 GMT
I've never lent on the "one-year bond" market, but if what people are saying here is true, then it seems odd that RS advertise it as a one-year "bond" with all capital and interest repaid at the end of the year, and also make reference to the investor "committing" their money for a year. This is the wording: The language makes it sound very much like a bank or government bond, and the fact that all interest is paid at the end of the year implies a contract in which RS is free to use your capital as it wishes during that year so long as it repays capital and interest at the end of "term". But what we're hearing is that there is no clearly defined "term" and that interest can be repaid at any time. Is this really the same "product"? Or are people mixing up a previous version of one-year lending with the current "bond" offer?
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jhma
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Post by jhma on Jul 29, 2014 8:14:48 GMT
Yes, it was the wording on the website that prompted me to analyse results and post on the subject. It would be misleading to a new user.
The product has certainly been a 'one year bond' over the 20 months that I have been involved. I can't comment on previous offerings though.
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spiral
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Post by spiral on Jul 29, 2014 11:52:35 GMT
On the Zopa forum recently if I recall correctly, a Zopa employee stated that around 18% of 5 yr loans are repaid before the end of their term.
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Post by geoffrey on Jul 29, 2014 17:15:13 GMT
I think RS should not be using a term like "bond" if it is not offering a clear and fixed term of repayment with interest. I don't have a legal dictionary, but the OED definition of a bond is: The vocabulary and description on the RS Web page would lead an investor to expect that they are handing over their money to RS, who then can use the money to invest on the markets, and will repay the debenture to the investor according to the stated term, with interest. If what happens is different, and the term is not "bound" to be one year as described, then I don't really see how the term "bond" can be used, and at the very least, the description given should clearly state that the bond can be repaid early with pro rata interest. Maybe the T&Cs say so, but it's important for the sake of transparency that it be clearly stated in the advertising material on the site.
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