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Post by p2pinfo on Nov 13, 2015 9:51:37 GMT
One thing that has irked me slightly as a newbie is that the interest rates on offer are slightly opaque.
6% sounds and looks great in that bold type but assumes reinvestment for the entire 5 year term. That makes it harder to compare to Santander, which is 3% of your balance.
Ignoring tax and charges for the 123 account and assuming reinvestment, the equivalent interest on £10,000 over the 5 years would be £1,616.17, an average of £323.23 a year, so is the comparable interest rate 3.23% or have I missed something?
Just considering the 3-year product, and at 5.8% this is pretty close to the 5-year. At what differential is a 3-year actually better?
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Post by settersam on Nov 13, 2015 10:00:45 GMT
Not exactly what you are looking for but this may help (it will give you the total interest over the loan period): www.amortization-calc.com/ |
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jimbob
Member of DD Central
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Post by jimbob on Nov 13, 2015 10:12:30 GMT
5% is 5% whether it is a regular saver (Effectively a reverse amortising loan); just sitting in a bank account (Whether it has a limit or not); interest paid out regularly in p2p (Savingstream) or an amortising loan.
Of course access to capital is the crunch point ! And of course you will have a reducing / increasing /static capital depending on the product which means the final returns all look very different.
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Post by uncletone on Nov 13, 2015 21:44:48 GMT
6% sounds and looks great in that bold type but assumes reinvestment for the entire 5 year term. No it doesn't. You get a 6% return without any re-investment at all. But you only get 6% on the amount that the borrower still owes you, and that is constantly decreasing, month by month.
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Post by p2pinfo on Nov 14, 2015 7:42:47 GMT
What I was after was some kind of calculator which did the sums on returns should I not re-invest all of it, or if there is a delay in reinvesting capital and interest, or even if that money was invested elsewhere.
For instance, if you were to invest £100,000 and then use the interest to pay for something then reinvest the rest.
Leaving the loan to amortise over 5 years, and doing nothing with the proceeds would give an effective rate of around 3%-ish (£11,600 back on £10,000). What is the minimum I would have to reinvest to give me an effective rate of 5%? Would just the capital suffice?
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sl75
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Post by sl75 on Nov 15, 2015 22:19:58 GMT
Leaving the loan to amortise over 5 years, and doing nothing with the proceeds would give an effective rate of around 3%-ish (£11,600 back on £10,000). What is the minimum I would have to reinvest to give me an effective rate of 5%? Would just the capital suffice? The effective rate is the rate you are actually getting for the time the money is invested. If you really want to receive an effective rate of zero on the money that's returned, you can use a suitably weighted average of the effective rate for the RateSetter investment and the effective rate of the "doing nothing with the proceeds" investment. Goodness knows why you would want to do that though...
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iren
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Post by iren on Nov 16, 2015 13:44:50 GMT
Some of the information in this thread is incorrect.
If you lend at "6.0%" in the 3 or 5 year markets, the simple rate of interest is not 6%. The "6.0%" assumes compounding the interest through reinvestment at the same rate for the remainder of the term. For example, if you lend at "6.0%" in the 3 year market, the simple rate of interest is 5.85%. This is clear on the individual loan contracts that were downloadable from the site until just a few weeks ago.
It's something that lenders need to be aware of when comparing platforms. For example, Wellesley always quote simple rates.
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