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Post by saintpeter on Jun 30, 2020 9:06:44 GMT
Most of the loans that I have invested in are paying me 1.5% or less (since the interest rate halved) but when I look into the details, the borrower is paying Ratesetter a really high amount, many on 10%+. What is happening to all this money? Ratesetter must be making huge profits.
Also, why is Ratesetter lending at such risky amounts and why would they include loans that are over a year and for very high amounts as Access loans? Surely they would have realised before the crisis that if these loans cannot be liquidated easily then the investor will have to wait the full term of the loan to get their money out. Access should have only ever been short term loans imo.
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Post by bouncycastle on Jun 30, 2020 9:48:26 GMT
Borrower pays three fees rolled up into one: your cost of funds (interest), the RS admin fee (they say between 1-2%) and the rest to the Provision Fund. When they reduced the interest rate they said they would be upping the contribution to the PF by the extra 1.5%. The contribution to the PF is based on their risk profile, estimated by internal and external scorecards. Apols if you knew this already, but this is really one of the reasons that P2P doesn’t really make any money!, purely because the cost of funds and the risk profile lines are too closely aligned. If RS was actually making any money (which it is nowhere near to doing btw), it wouldn’t be having the liquidity strife it’s having and wouldn’t be selling itself at such a heavy discount from its predicted value in years gone by.
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puddleduck
Member of DD Central
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Post by puddleduck on Jun 30, 2020 10:15:45 GMT
If RS was actually making any money (which it is nowhere near to doing btw), it wouldn’t be having the liquidity strife it’s having There is no correlation between Ratesetter making (or not) money and the liquidity event. The liquidity event is driven by customers, not Ratesetter's profit and loss account.
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rscal
Posts: 882
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Post by rscal on Jun 30, 2020 12:06:04 GMT
Borrower pays three fees rolled up into one: your cost of funds (interest), the RS admin fee (they say between 1-2%) and the rest to the Provision Fund. When they reduced the interest rate they said they would be upping the contribution to the PF by the extra 1.5%. The contribution to the PF is based on their risk profile, estimated by internal and external scorecards. Apols if you knew this already, but this is really one of the reasons that P2P doesn’t really make any money!, purely because the cost of funds and the risk profile lines are too closely aligned. If RS was actually making any money (which it is nowhere near to doing btw), it wouldn’t be having the liquidity strife it’s having and wouldn’t be selling itself at such a heavy discount from its predicted value in years gone by. The lack of the 'insurance principle'? Or, in other words banking is about 'managing risk'. Banks differ in being able to cross subsidise and practicaly doing anything they want in order to stay in business. Regulated firms like RS have to follow more restrictive rules.
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Post by bouncycastle on Jun 30, 2020 17:44:44 GMT
If RS was actually making any money (which it is nowhere near to doing btw), it wouldn’t be having the liquidity strife it’s having There is no correlation between Ratesetter making (or not) money and the liquidity event. The liquidity event is driven by customers, not Ratesetter's profit and loss account. Yes, apologies that is a good point. There’s no doubt however that if they were making money that they would have been more confident that they could ride out the liquidity storm and let the P2P model run its course: what I am saying is that the lack of profitability over the years has led to them being forced to find a way out (as if they don’t they are likely to fold) whereas if they were profitable, they could dial down lending and borrowing knowing they would still be in business when the environment changed
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aju
Member of DD Central
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Post by aju on Jul 2, 2020 15:04:54 GMT
Most of the loans that I have invested in are paying me 1.5% or less (since the interest rate halved) but when I look into the details, the borrower is paying Ratesetter a really high amount, many on 10%+. What is happening to all this money? Ratesetter must be making huge profits. Also, why is Ratesetter lending at such risky amounts and why would they include loans that are over a year and for very high amounts as Access loans? Surely they would have realised before the crisis that if these loans cannot be liquidated easily then the investor will have to wait the full term of the loan to get their money out. Access should have only ever been short term loans imo. I'm not sure but unless you are covering the whole loan then you may be getting 1.5%(3.0% posted rate) but what you may not be thinking of is that for most loans there will be a large number of lenders covering the whole of a loan. So for instance in my case I played the real ratesetter lending that is I waited for certain daily/weekly points when all the standard rates lending was complete and picked up loans at 5% or in some case even better. This I believe is standard across all products. Also if you are talking the new Access/Max/Plus products then I believe they are all effectively a single queue. I assume since I don't know and have never investigated it that lending in these products would probably be set to pick up the lower Access rates before the Max and Plus rates and so on. I believe also that when the new product queues are completed then it might also be forced into the 5 Year queues too but I have not heard this is the case. I'm sure someone will come along and blow my general notion out of the water but I would be surprised if I am not on the right track. RS needs to cover loans as quickly as they can on a daily basis, well they did before the new borrowing dried up again assuming it has of course.
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