bigfoot12
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Post by bigfoot12 on Oct 19, 2015 7:53:52 GMT
There isn't a simpler solution. There is a simpler solution - the one most other platforms I'm aware of use (including regulated exchanges such as the bonds market on the London Stock Exchange) - that any accrued interest becomes the property of the buyer, and the price agreed between buyer and seller (whether determined by the platform, or by negotiation between the buyer and seller) reflects this. This way, the accrued interest due to any given lender can be calculated solely on the basis of that lender's holdings at that precise moment, with no reference to historic sales and purchases during the accrual period. It also allows those who wish to exit the platform completely to do so without needing to withdraw dribs and drabs of interest... only when entire loans are blocked from sale would a lender who sells out completely even need to come back to the platform at all! The "seller keeps accrued interest" mechanism certainly seems a smart solution to the pricing function of loan parts, which can then focus solely on the value of the capital. However, the huge complexity around the AC interest accrual calculation seems to me a direct result of this decision to treat "capital" and "accrued interest" completely separately on the secondary market, allowing one to be sold and blocking sales of the other completely. Instead of just multiplying the total accrued interest on the borrower loan by the proportion of the loan currently held, this then results in AC having to analyse all past sales and purchases in order to discover exactly how long that specific lender has held units of the loan over the entire interest accrual period. That isn't obviously simpler for the end users, and in a time of uncertain tax treatment of P2P might cause a lot of problems. If loan parts were a certain type of securities then I could deduct the accrued interest I paid when buying a 'used' loan part from the interest paid to me and pay tax on the net (which most people would see as fair). It can become complicated, because my purchase and the tax payment can be in different years. Are we sure that HMRC will allow the deduction of accrued paid on the purchase? I doubt it, because we don't seem very sure of much regarding the taxation of P2P.
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sl75
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Post by sl75 on Oct 19, 2015 9:38:02 GMT
Sorry but I strongly disagree. Whether the accrued interest is paid by a buyer or not doesn't change the way the interest itself is calculated which is what was being criticised for being too complex. It changes the number of times that this calculation must be done, and the amount of data that must be fed into it, therefore greatly increasing the complexity of "the interest calculation". Typically, a lender will not currently reach their target purchase in a single step, but in multiple purchases of "shrapnel" over several days, weeks, or even months, and must take ALL of the relevant purchases during the current accrual period into account if they want to check their interest calculation... This is no more complex than the equivalent calculations on a current or savings account, but still more complex than many traditional investments, where the only information needed to be known was the amount of units held on the "record date". As you acknowledge, there is a trade-off between simplicity in one calculation and complexity in another. AC have chosen to make "the interest calculation" more complex in order to allow a little more simplicity in the pricing function.
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skippyonspeed
Some people think I'm a little bit crazy, but I know my mind's not hazy
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Post by skippyonspeed on Oct 19, 2015 10:32:37 GMT
Sorry but I strongly disagree. Whether the accrued interest is paid by a buyer or not doesn't change the way the interest itself is calculated which is what was being criticised for being too complex. It changes the number of times that this calculation must be done, and the amount of data that must be fed into it, therefore greatly increasing the complexity of "the interest calculation". Typically, a lender will not currently reach their target purchase in a single step, but in multiple purchases of "shrapnel" over several days, weeks, or even months, and must take ALL of the relevant purchases during the current accrual period into account if they want to check their interest calculation... This is no more complex than the equivalent calculations on a current or savings account, but still more complex than many traditional investments, where the only information needed to be known was the amount of units held on the "record date". As you acknowledge, there is a trade-off between simplicity in one calculation and complexity in another. AC have chosen to make "the interest calculation" more complex in order to allow a little more simplicity in the pricing function. I personally do not have a problem with this...unless more than one loan has had a large number purchases on one day, because I can simply copy and paste all other loans' purchases into my spreadsheet and deduct the total from the total on the dashboard to give other loan's total buys for that day......just thought of the answer simply take the new totals from the loan book.....well I have been up all night.....it only creates a mammoth task if you do not make mods daily.....but there again one can download an Excel spreadsheet to transfer data for the period to transfer data in question which would probably be less time consuming.
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sl75
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Post by sl75 on Oct 19, 2015 11:47:03 GMT
I personally do not have a problem with this...unless more than one loan has had a large number purchases on one day, because I can simply copy and paste all other loans' purchases into my spreadsheet and deduct the total from the total on the dashboard to give other loan's total buys for that day......just thought of the answer simply take the new totals from the loan book.....well I have been up all night.....it only creates a mammoth task if you do not make mods daily.....but there again one can download an Excel spreadsheet to transfer data for the period to transfer data in question which would probably be less time consuming. *shrug* well, as you were the one saying it was too complex in the first place, maybe I got the wrong end of the thread about which aspect was too complex? I guess that puts this subthread to rest!
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skippyonspeed
Some people think I'm a little bit crazy, but I know my mind's not hazy
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Post by skippyonspeed on Oct 22, 2015 2:00:19 GMT
*shrug* well, as you were the one saying it was too complex in the first place, maybe I got the wrong end of the thread about which aspect was too complex? I guess that puts this subthread to rest! I was only referring to multiple purchases in your 2nd paragraph......perhaps I should have made it clear by selecting as the "quote". Apologies
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