huxs
Member of DD Central
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Likes: 218
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Post by huxs on Nov 4, 2015 11:10:39 GMT
Hi westonkevRS,
Can you please save us from ourselves (and the continual conspiracy theories) and explain how Borrower Rates are set. I like a lot of other people on this forum see what looks like strange things happening with Borrower rates that may be a lot easier to accept if we have a better understanding of who and how borrow rates are selected.
My initial (incorrect) understanding was that the borrow themselves have a very similar view of the live rates, that us Lenders have and could select if they wanted to accept the offered rate or not. This is obviously not how it works so any insight you can provide would be grateful (as well as probably save you a lot of exasperation when you read our comments that seem to question RS's scruples)
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Post by westonkevRS on Nov 4, 2015 15:48:50 GMT
Hi westonkevRS,
Can you please save us from ourselves (and the continual conspiracy theories) and explain how Borrower Rates are set. I like a lot of other people on this forum see what looks like strange things happening with Borrower rates that may be a lot easier to accept if we have a better understanding of who and how borrow rates are selected.
My initial (incorrect) understanding was that the borrow themselves have a very similar view of the live rates, that us Lenders have and could select if they wanted to accept the offered rate or not. This is obviously not how it works so any insight you can provide would be grateful (as well as probably save you a lot of exasperation when you read our comments that seem to question RS's scruples) obviously I can't go into the detail of how loans are priced, this has competitive issues. The "lender return" is what we call the "base rate", and in order to get to the final interest rate and APR charged to the borrower this "base rate" is supplemented by fees - brokers and the RateSetter margin, but also the contribution to the Provision Fund. Within the markets, all these additional charges are stripped out. The lenders on the markets see the APR reduced down to just the lender part of the loan, the "base rate". When a borrower tries to get a lower rate they challenge the higher APR, and the system re-calculates their offer down by removing the fees to a lender return relevant for the market. The borrower may never actually see the "base rate" being paid to lenders; just their interest rate and fees. So effectively lenders are looking at a lower number in the markets, and borrowers are just looking at a higher APR. Kevin.
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huxs
Member of DD Central
Posts: 300
Likes: 218
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Post by huxs on Nov 4, 2015 16:07:46 GMT
Thanks Kev,
So in a simple world where you had 2 lenders 1 offering £100 at 5.5 and 1 lend offering £100 at 5.6 a new borrower who wanted to borrow £200(for whom the RS fees and PF fees = 10%) would actually see 1 offer at 15.5% and 1 at 15.6% (give or take a bit of rounding) and would they have the ability to say they want take the 15.5% and hopefully wait for another lender to cover the balance or they raise their rate to 15.6% to get the full amount?
Or does the borrow get offered 15.5% and without seeing the lenders rates (with the fee's etc on top) decide they need to raise their rate as this doesn't get filled?
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ikorodu
Member of DD Central
Posts: 75 
Likes: 9
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Post by ikorodu on Nov 4, 2015 16:45:45 GMT
Hi westonkevRS,
Can you please save us from ourselves (and the continual conspiracy theories) and explain how Borrower Rates are set. I like a lot of other people on this forum see what looks like strange things happening with Borrower rates that may be a lot easier to accept if we have a better understanding of who and how borrow rates are selected.
My initial (incorrect) understanding was that the borrow themselves have a very similar view of the live rates, that us Lenders have and could select if they wanted to accept the offered rate or not. This is obviously not how it works so any insight you can provide would be grateful (as well as probably save you a lot of exasperation when you read our comments that seem to question RS's scruples) obviously I can't go into the detail of how loans are priced, this has competitive issues. The "lender return" is what we call the "base rate", and in order to get to the final interest rate and APR charged to the borrower this "base rate" is supplemented by fees - brokers and the RateSetter margin, but also the contribution to the Provision Fund. Within the markets, all these additional charges are stripped out. The lenders on the markets see the APR reduced down to just the lender part of the loan, the "base rate". When a borrower tries to get a lower rate they challenge the higher APR, and the system re-calculates their offer down by removing the fees to a lender return relevant for the market. The borrower may never actually see the "base rate" being paid to lenders; just their interest rate and fees. So effectively lenders are looking at a lower number in the markets, and borrowers are just looking at a higher APR. Kevin. So the initial offer to the borrower is not generated by reference to what is on offer from the lenders, but by Kev's assessment of their risk? Eg a very credit worthy chap asks for a £10k loan over 5 years. Kev quotes them an APR of 8%. Once you strip out the RS fees and PF contribution then (say) this leaves a base rate (lender rate) of 6%. So if the borrower accepts this offer of 8% a borrower offer appears on the market of 6%. If the borrower thinks that the 8% is a bit strong they can counter with say 7% APR and RS will take off the same fees and PF contribution as before which would result in an offer of 5% on the market. Or am I talking buzzcocks?
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Post by westonkevRS on Nov 4, 2015 17:30:31 GMT
So in a simple world where you had 2 lenders 1 offering £100 at 5.5 and 1 lend offering £100 at 5.6 a new borrower who wanted to borrow £200(for whom the RS fees and PF fees = 10%) would actually see 1 offer at 15.5% and 1 at 15.6% (give or take a bit of rounding) and would they have the ability to say they want take the 15.5% and hopefully wait for another lender to cover the balance or they raise their rate to 15.6% to get the full amount?
Or does the borrow get offered 15.5% and without seeing the lenders rates (with the fee's etc on top) decide they need to raise their rate as this doesn't get filled? If a loan is approved, it is filled with all the lowest offerred rates from lenders to fill the loan. This can be an average of various lender rates. Imagine a sweetie dispenser paying out sweets from the bottom at the lowest rates until the pot is filled. This is then the approved loan ready for completion by the borrower if happy with APR. The borrower isn't offered a choice of APRs, just the best priced filled lowest possible APR loan with lender available money at that point. If they try to get a lower APR, be a RateSetter, they can say what APR they would be happy with. Theoretically this lender money isn't available as otherwise it would always be part of the loan. RateSetter will determine the lender rate required to get the APR. An offer would be put into the markets (as per the example by ikoroduKevin.
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ikorodu
Member of DD Central
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Post by ikorodu on Nov 4, 2015 23:01:31 GMT
I see!
So the first offer to the borrower is based on what's available as lender offers. And all the borrower offers we lenders see are borrowers chancing their arm for a lower Apr loan.
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Post by westonkevRS on Nov 5, 2015 6:36:27 GMT
I see! So the first offer to the borrower is based on what's available as lender offers. And all the borrower offers we lenders see are borrowers chancing their arm for a lower Apr loan. Yes, virtually. The markets had a problem in that only a small minority of direct borrowers ever challenged the APR and typically just wanted to accept the loan offer and get on with things. In addition many sources of loans (e.g. brokers) wouldn't/couldn't be ratesetters so a growing percentage of business couldn't participate. Remember a borrower ratesetter lower offer can have up to 2 weeks for a lender to bite, and this isn't acceptable or normal for most source channels of loan. RateSetter is an abnormality in financial services, even within P2P where we allow lenders to set the rate. The majority of "ratesetters" were on the lender side only, so the markets had a distored look and didn't really reflect a buyer's market. Without showing any borrower applications lenders could have had an incorrect impression of the loan funnell and reduced their offer without needing to. So now the markets include borrower requests that have not yet been completed, i.e. loans approved but not yet completed by the customer and monies dispersed. A borrower may not have made a specific request for a specific APR. This is an automated process to ensure two sides to the market. Also to give lenders confidence to maintain their chosen rate as they can see loans coming through. All trades are real, and the markets now have a truer feel of demand from both sides . Personally though, I don't think lenders look at the borrower offers. Lenders, myself included, look only at the size and volume of lender offers before placing money on the market. @ westonkevRS
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spiral
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Post by spiral on Nov 5, 2015 9:43:28 GMT
So now the markets include borrower requests that have not yet been completed, i.e. loans approved but not yet completed by the customer and monies dispersed. A borrower may not have made a specific request for a specific APR. This is an automated process to ensure two sides to the market. So in a nutshell. You know that there is a loan to be made of say £50K but it just needs the i's and t's dotting and crossing so you add this offer to the market at 0.1% below the best lender offer. If anyone bites on this rate, all well and good for the borrower but at the point all the i's and t's are dotted and crossed, the remainder of the loan mops up from the lender side of the market.
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