|
|
Post by accumul8 on Feb 24, 2015 11:05:19 GMT
Can anyone shed light on how RS calculates interest payable in the monthly market?
I have been looking at my returns on the monthly market and none of them seem to agree with the rates quoted - and all of the returns seem to be below the rates quoted.
As an example, I lent £2,000 on the monthly market on 20/1 at 3.4%. This matured on 20/2 and paid £5.69 interest.
By my calculation, that is 31 days and the interest should be £2k x 3.4% x 31/365 = £5.78 (or maybe £5.77 if you round down). Or to put it another way, £5.69 represents only 3.35% interest over 31 days.
Am I missing something obvious here?
|
|
|
|
Post by fiatlender on Feb 24, 2015 11:36:51 GMT
I think this is down to compounding interest. If you look at the contract for that loan, it should show a rate of 3.35% which comes to 3.4% compounded over the year.
|
|
|
|
Post by accumul8 on Feb 24, 2015 11:56:38 GMT
I think this is down to compounding interest. If you look at the contract for that loan, it should show a rate of 3.35% which comes to 3.4% compounded over the year. Thanks, fiatlender - you are absolutely correct! And I have no problem with the rate being quoted as a compounded one - this is equivalent to an APR on a monthly interest savings account.
|
|
|
|
Post by robinshould on Feb 27, 2015 21:31:37 GMT
There is a bit of smoke and mirrors in the interest rate that ratesetter claims the lender gets. For instance for a so called 5 year lender return of 6.7% the interest rate shown in the contract is actually 6.51%. If you were borrowing money from a bank on a daily basis at 6.51% and put it into ratesetter, and assuming you could put back into your bank the capital and interest payments from ratesetter on a daily basis without any delays, then you would need a ratesetter headline rate of 6.7% to breakeven. This is rather a long winded way of saying the true rate from ratesetter is what is shown in the contract as the interest rate.
|
|
|
|
Post by pepperpot on Feb 27, 2015 22:30:01 GMT
There is a bit of smoke and mirrors in the interest rate that ratesetter claims the lender gets. For instance for a so called 5 year lender return of 6.7% the interest rate shown in the contract is actually 6.51%. If you were borrowing money from a bank on a daily basis at 6.51% and put it into ratesetter, and assuming you could put back into your bank the capital and interest payments from ratesetter on a daily basis without any delays, then you would need a ratesetter headline rate of 6.7% to breakeven. This is rather a long winded way of saying the true rate from ratesetter is what is shown in the contract as the interest rate. RS don't try to hide the actual rate on the loan, it's just the headline rate of 6.7% (in your eg) is made up of the 6.51% in the original loan and assumes you re-invest the capital and interest you receive on a monthly basis back into the market. So the interest received is now earning it's own 6.51%, and next month that additional interest will earn another 6.51%... hence the 'compounding' mentioned above. At the end of the year, if all payments are re-invested, you will have £6.70** for every £100 you have put into RS. HTH **This also presumes rates are the same throughout the year, but Feb has shown the rate is open to fluctuation due to supply/demand forces.
|
|
|
|
Post by robinshould on Feb 27, 2015 23:30:57 GMT
I very much agree with you for the reasons that the 'lender return' is slightly higher than the 'interest rate' as the lender return assumes that the interest is reinvested as it is paid by the borrower. The reason I say that there is a bit of smoke and mirrors on this is that when a lender sets the rate to lend at on the place lending order screen, eg in my example at 6.7%, the lender is in fact setting the 'lender return'. All the way through the ratesetter web site it refers to 'rate' when it should refer to 'lender return'. So although if you read the small print you will know the difference, the repeated use of the word 'rate' instead of 'lender return' is likely to give the impression that the interest rate the lender receives is higher than it in fact is.
Perhaps Kev would like to comment on this repeated use of the word 'rate' instead of 'lender return'?
|
|
|
|
Post by westonkevRS on Feb 28, 2015 7:19:19 GMT
I very much agree with you for the reasons that the 'lender return' is slightly higher than the 'interest rate' as the lender return assumes that the interest is reinvested as it is paid by the borrower. The reason I say that there is a bit of smoke and mirrors on this is that when a lender sets the rate to lend at on the place lending order screen, eg in my example at 6.7%, the lender is in fact setting the 'lender return'. All the way through the ratesetter web site it refers to 'rate' when it should refer to 'lender return'. So although if you read the small print you will know the difference, the repeated use of the word 'rate' instead of 'lender return' is likely to give the impression that the interest rate the lender receives is higher than it in fact is. Perhaps Kev would like to comment on this repeated use of the word 'rate' instead of 'lender return'? Not really, to be honest. This terminology and methodology is common across all platforms. The legalities have been reviewed by the Credit Reference Agencies before we could work with them, the British Business Bank and we had to provide a lot of information to get FCA interim regulated. Amongst many other reviews by significant intererest parties such as large ("institutional") lenders. We also have three in house employees whe are technically lawyers although that isn't their day job now. We have also recently recruited a very experienced Head of Compliance who is running his fingers over everything. On top of all this, I'm comfortable. Kevin.
|
|
|
|
Post by westonkevRS on Feb 28, 2015 8:19:48 GMT
Also, the FAQs are quite clear (http://www.ratesetter.com/lend/faq ):
"Our displayed rates of return assume that a Lender is reinvesting their repayments in the same market, at the same rate. If your calculated rate of return is less, this may be that you have not reinvested your repayments, or have reinvested them at a lower rate than the original rate you agreed"
Kevin.
|
|
|
|
Post by chielamangus on Feb 28, 2015 9:42:25 GMT
When talking about interest rates and returns, especially comparisons over time, one should not forget that RS is STILL taking its 10 per cent cut on pre mid-April 2014 loans. I have paid about £7.70 so far this month in fees. I wish my borrowers would repay their loans early so I can get out of this clamp. Some have another 4 years to run ....
|
|
|
|
Post by robinshould on Feb 28, 2015 10:06:19 GMT
Thanks for your reply Kevin. It might interest you to share my lender experience. When I first lent on ratesetter and used a standard mortgage repayment calculator to check the schedule of payments on the 5 year loan, it came back with a slightly higher repayment than the ratesetter one. Of couse this was because I was using the 'rate' that I put into the lending screen and I was thinking that when I did that I was setting the interest rate. I only found out what the true interest rate was once I was issued with the lending contract. I actually lost some confidence with what was going on for a while. I think that should be important to you as I know that trust is critical to ratesetter. I then had to do some digging to understand what was going on.
Notwithstanding the above I am a big supporter ( and lender) of ratesetter and only make these comments in this spirit.
Your comments about all the checks that have gone on regarding compliance etc are I suspect more to protect the borrower, and the big institutional lenders are hardly going to be worried about the clarity offered to the retail lender.
|
|
c88dnf
Member of DD Central
Posts: 364 
Likes: 266
|
Post by c88dnf on Feb 28, 2015 10:47:53 GMT
When talking about interest rates and returns, especially comparisons over time, one should not forget that RS is STILL taking its 10 per cent cut on pre mid-April 2014 loans. I have paid about £7.70 so far this month in fees. I wish my borrowers would repay their loans early so I can get out of this clamp. Some have another 4 years to run .... You may have forgotten that the interest rate shown on your loan is AFTER the 10% fee. This is Ratesetter, not Zopa!
|
|
ikorodu
Member of DD Central
Posts: 75
Likes: 9
|
Post by ikorodu on Feb 28, 2015 12:36:31 GMT
I seem to remember that in the past there was a calculator on the RS website that allowed lenders to enter a few numbers and see an example of the returns taht an investment may generate.
I can't see it any more.
Would this be a good idea to bring it back?
It could be caveated with the usual 'illustration only' get out clauses etc, but if it allowed you to select reinvestment as an option then people could see what they were likely to expect up front.
|
|
|
|
Post by chielamangus on Feb 28, 2015 12:50:51 GMT
When talking about interest rates and returns, especially comparisons over time, one should not forget that RS is STILL taking its 10 per cent cut on pre mid-April 2014 loans. I have paid about £7.70 so far this month in fees. I wish my borrowers would repay their loans early so I can get out of this clamp. Some have another 4 years to run .... You may have forgotten that the interest rate shown on your loan is AFTER the 10% fee. This is Ratesetter, not Zopa! You're right. I had forgotten. I was momentarily a little depressed at how low the return was!
|
|
|
|
Post by westonkevRS on Feb 28, 2015 13:54:41 GMT
When talking about interest rates and returns, especially comparisons over time, one should not forget that RS is STILL taking its 10 per cent cut on pre mid-April 2014 loans. I have paid about £7.70 so far this month in fees. I wish my borrowers would repay their loans early so I can get out of this clamp. Some have another 4 years to run .... Sort of true. There was a 10% fee, but we added 10% to the achieved rate before taking it off. Now we don't add any to the lender return or take it off! The reason RateSetter did this in the early days was lost on me, but I was very please it was removed (as a lender) due to the confusion. The net result is that returns have always been the same. What you saw, what you matched, was always your return. We just made things a little more complicated on the statement. westonkevRS
|
|
