adrianc
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Post by adrianc on Mar 5, 2015 8:16:39 GMT
No sooner closed, than already commented...
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blender
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Post by blender on Mar 5, 2015 8:54:03 GMT
Love it. It's not a cock-up of course. They just chose to do it that way, to add variety.
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mikeb
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Post by mikeb on Mar 5, 2015 8:54:17 GMT
What if we all avoid tranche 3, then where's the interest going to come from?
That is a novel loan model though: "Interest only, but without the interest."
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sl75
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Post by sl75 on Mar 5, 2015 9:59:46 GMT
Rather than all this messing around with retaining chunks of our own money in order to trick us into thinking we're being paid interest monthly, it might be good to see an additional loan type that simply accrues interest until the borrower repays it in full...
If the borrower isn't making monthly payments, I don't see the need for lenders to receive them!
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am
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Post by am on Mar 5, 2015 11:23:33 GMT
Rather than all this messing around with retaining chunks of our own money in order to trick us into thinking we're being paid interest monthly, it might be good to see an additional loan type that simply accrues interest until the borrower repays it in full... If the borrower isn't making monthly payments, I don't see the need for lenders to receive them! If they did that the annualised return figure would be lower. FC might well fear that new lenders might become discouraged.
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sl75
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Post by sl75 on Mar 5, 2015 12:25:43 GMT
Rather than all this messing around with retaining chunks of our own money in order to trick us into thinking we're being paid interest monthly, it might be good to see an additional loan type that simply accrues interest until the borrower repays it in full... If the borrower isn't making monthly payments, I don't see the need for lenders to receive them! If they did that the annualised return figure would be lower. FC might well fear that new lenders might become discouraged. It would be a trivial matter to adjust the annualised return to take account of accrued interest (either as a separate reported figure, or by changing the definition of the existing one).
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blender
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Post by blender on Mar 5, 2015 13:28:11 GMT
If they did that the annualised return figure would be lower. FC might well fear that new lenders might become discouraged. It would be a trivial matter to adjust the annualised return to take account of accrued interest (either as a separate reported figure, or by changing the definition of the existing one). You are perhaps forgetting the secondary market, which relies on monthly payments of interest at least. Suppose you buy one of these loans with rolled up interest with a 24 month term. Imagine selling it after a year - how is the interest handled? (Will anyone be anyone is daft enough to pay you half the interest and take all the risk in the expectation of getting all of it later). And it is taxable in a chunk when you receive it, on repayment or sale only? In any case I rather think that FC's systems may collapse if there is no monthly repayment. That poor little programme which calculates all the monthly repayments up front would be unhappy. (Agree with the silliness of the current pretence and the inequity of paying tax on just giving FC your money so they can pay it back to you slowly.)
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sl75
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Post by sl75 on Mar 5, 2015 14:53:58 GMT
Suppose you buy one of these loans with rolled up interest with a 24 month term. Imagine selling it after a year - how is the interest handled? (Will anyone be anyone is daft enough to pay you half the interest and take all the risk in the expectation of getting all of it later). The risk of loss is the same (based on whether the borrower makes the final payment and/or whether an equivalent amount can be recovered), whether you refer to the payment that you made to the seller as "interest" or as "capital". Suppose that a loan part has a final borrower repayment of £500, and the borrower originally drew down £400 from that loan part. We can call it "a £400 loan part, with £100 of interest paid by the borrower at the end", or "a £500 loan part with £100 of interest retained on drawdown". On resale half-way through the term, you can describe it as "a £400 loan part with £50 of accrued interest to be paid by the buyer" or as "a £500 loan part with £50 of retained interest to be returned to the buyer over the remaining half of the term". The overall risk of not getting the £500 back in full will be identical in both cases... but perhaps more importantly, the original lender, and the buyer have tied up less money in the case where none of the original lender's money gets re-labelled "retained interest". Exact tax treatment may differ, and obviously I cannot advise on that...
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blender
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Post by blender on Mar 5, 2015 15:23:19 GMT
There are also FC's 1% fees to worry about. If the interest is rolled up and there is a single repayment of principal and interest at the end, from which pot is FC to take its monthly 1% of the principal outstanding (all of it)?
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sl75
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Post by sl75 on Mar 6, 2015 0:49:06 GMT
There are also FC's 1% fees to worry about. If the interest is rolled up and there is a single repayment of principal and interest at the end, from which pot is FC to take its monthly 1% of the principal outstanding (all of it)? The exact fee structure is of course for the platform to determine (some have abandoned lender-visible fees altogether, accounting for exactly the same fee as being "paid for by the borrower", whether for marketing or tax efficiency or other reasons), but if the same fee structure remains, the rolled-up accrued fee would be paid at the same time as the rolled-up accrued interest was credited. i.e. if there are no repayments for N months, there would also be no "lender" fees paid for N months, as these are paid only when processing a repayment. Better display of "accrued fees" alongside "accrued interest" might become necessary in some parts of the site, but again, this isn't a fundamental issue.
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Post by GSV3MIaC on Mar 6, 2015 16:36:47 GMT
But right now they don't have any concept of accrued fees .. one of the joys of selling loan parts is that they apportion the interest, so you get paid for accrued interest, but whoever own the part on payment day gets to pay ALL of the FC fee .. always seemed a bit odd to me.
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blender
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Post by blender on Mar 6, 2015 23:18:20 GMT
But right now they don't have any concept of accrued fees .. one of the joys of selling loan parts is that they apportion the interest, so you get paid for accrued interest, but whoever own the part on payment day gets to pay ALL of the FC fee .. always seemed a bit odd to me. It's a consequence of fees not being accrued. Whereas interest is accrued daily, the fee is a discrete charge of one twelfth of 1% of principal levied on the loan part holder monthly - whoever is holding the parcel when the music stops - but only if the payment is actually made. Different in nature. The interest is also the larger number of course. Ideally both should be accrued and paid/charged to the various holders over the period if and when the payment is made - but we know that cannot be done. Fiddled Compromise can only pay the monthly interest to one lender and can only charge one lender a fee at the end of each month - and only the amounts in the pre-determined schedule.
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markr
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Post by markr on Mar 9, 2015 15:41:12 GMT
Presumably (although we know what presume does - makes a pres of u and me), Flugelhorn Crumplers (yes I know I've used this before but outside the FC section so it missed the spreadsheet) account for this fee anomaly in the buyer rate calculation. I wonder if this is why sometimes fixed rate loans sold at par show a buyer rate below the fixed rate.
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adrianc
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Post by adrianc on Mar 10, 2015 15:48:27 GMT
Love it. It's not a cock-up of course. They just chose to do it that way, to add variety. At least they admit it... 11250 has this comment... 04 Mar 2015 Please note that included in this listed amount of £370k is an amount of £17k which is interest due to investors on tranche 2 for this scheme (auction ID 11124). That pre-funded interest portion of tranche 2 was not taken at the time of listing due to an admin error. Once this tranche 3 loan funds, the £17k interest will be allocated to loan 11124. Investors into this tranche 3 loan are in no way compromised because of this action and all loans would rank on an equal footing in the event of default.
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