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Post by newlender on Jan 1, 2016 12:48:30 GMT
A happy new year to everyone on this forum! On December 30th I reached the intended % of my portfolio that I feel comfortable investing in RS and have now frozen all new investment and withdrawals, effectively leaving my money to roll up. I intend to calculate my profit on December 31 this year and will report back here. I've set up a spreadsheet with my money in the various markets and an overall total. A separate percentage format cell will calculate the profit as I update each market's total, with an overall figure for everything as the final percentage cell. I have money in all markets except monthly and have been actively re-investing from my holding account as repayments come in rather than using market rate. I'm wondering if this is the best strategy though. Never having used the automated market rate reinvestment facility, can you tell me if reinvested money is placed into hundreds of microloans as soon as there is £10 in the holding account (something I want to avoid) or whether in fact the reinvested cash is actually placed in bigger chunks. I want to go for the 5yr market for all reinvestments and would ideally like contracts of >£200 each time but at the moment it seems that active management is my only possibility. I know that microloans spread the risk but am happy that I can be a bit more adventurous with my fairly modest investment.
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Post by moneyball on Jan 2, 2016 17:50:27 GMT
Not quite.
"Microloans" spread the early repayment (either through default or simply early repayment) risk.
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Post by westonkevRS on Jan 2, 2016 19:36:48 GMT
A lot of lenders I meet like early repayment, especially if the loans were at 5% 5-year from 2013.... It reduces the average term (i.e. you get 6% for promising up to 5 years, but in reality it's a much reduced term due to amortisation and early repayment) and allows them to make a new active decision on what do to with their money.
More recent lenders seem to dislike early repayment as they are losing the rate they achieved and are happy with. Especially in the 1 year markets.
It's hard to please all the folk all of the time....
Kevin.
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Post by moneyball on Jan 2, 2016 20:01:30 GMT
A lot of lenders I meet like early repayment, especially if the loans were at 5% 5-year from 2013.... It reduces the average term (i.e. you get 6% for promising up to 5 years, but in reality it's a much reduced term due to amortisation and early repayment) and allows them to make a new active decision on what do to with their money. More recent lenders seem to dislike early repayment as they are losing the rate they achieved and are happy with. Especially in the 1 year markets. It's hard to please all the folk all of the time.... Kevin. Therefore, overall its a neutral aspect/dynamic regarding whether the current rate is better or worse then the early repaid loan. Big picture wise, allowing borrowers to repay early without penalty is a theoretical/actual detriment to the lender as the incentive to repay early (refinance) is there when rates reduce but face no burden when rates go up. I fully understand and support RS policy on this though as its a marketable part of the product/service they offer new borrowers (in fact, maybe a legal requirement of consumer credit?)
However, the "risk" attached to early repayment is that its an unpredictable aspect of the lenders investment. If as a lender, you want to increase the likelihood of relatively smooth returns (everything else being equal of course) then lower loan amounts across a higher number of contracts is a way to do this.
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Post by westonkevRS on Jan 3, 2016 21:00:04 GMT
Therefore, overall its a neutral aspect/dynamic regarding whether the current rate is better or worse then the early repaid loan. Big picture wise, allowing borrowers to repay early without penalty is a theoretical/actual detriment to the lender as the incentive to repay early (refinance) is there when rates reduce but face no burden when rates go up. I fully understand and support RS policy on this though as its a marketable part of the product/service they offer new borrowers (in fact, maybe a legal requirement of consumer credit?)
However, the "risk" attached to early repayment is that its an unpredictable aspect of the lenders investment. If as a lender, you want to increase the likelihood of relatively smooth returns (everything else being equal of course) then lower loan amounts across a higher number of contracts is a way to do this.
The " allowing borrowers to repay early without penalty" is a RateSetter product functionality, although in reality is so common within the loans market you'd struggle to market loans that couldn't be repaid without penalty. Although... RateSetter always stress " without additional fees", because any fees paid up-front such as the Provision Fund contribution are added to the balance and has to be repaid in full. So it's a moot point if the loan really can be repaid without fees.... The cancellation within the 14 day cooling off period is regulatory, and in fact 28 days is required for some forms of contract or is typical within certain industries (e.g. cars). Kevin
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Post by newlender on Jan 3, 2016 21:22:30 GMT
There is a slightly different aspect of P2P in that those of us who lend are taking a risk with our cash. We receive no compensation if the borrower wishes to repay early but are risking a big loss in the event of a financial meltdown. I know that there is a provision fund but the risk is still there. Not that I object to borrowers being able to repay early without penalty of course - just pointing out that in the last financial crash, lenders to the big banks (i.e. me with my cash ISA) didn't have much of a risk of losing any money due to government and other backing, but with P2P who knows what might happen. The interest rate differential is what makes us stay with P2P and accept that risk, but if it narrows that might change.
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