Back to last summer for the lending queues

I agree that interest rates in profiles will increase.

I think that there will be too few lenders at 14%. The queue system rewards asking for 28%. If you ask 14% you will get some loans at 14% and that will lose you a loan at 28%. That is what we saw last summer and is a big part of what Bondora was trying to fix with the current approach and I think we will go back to that problem unless Bondora has a queue for different interest rate ranges. Say one for 25% and up and one for less. It has to be very close to 28% or the incentive not to lend at lower interest rates will remain high.

An alternative to another queue would be to weight the queue position so you don't go to the back of the queue if you lend at a lower interest rate but instead get a new position based in part on the rate you lent at. The lower the matching rate, farther from the end of the queue our new position is. This is probably better but the problem is to pick the correct insertion point. Get the reward too strong and the incentive to offer low rates is too big and we have winner's curse. Get it too weak and the incentive to bid only 28% remains too strong.

There is already a fact that could encourage a bid below 28%: the percentage of loans that request lower rates, which will affect total lending speed. It is a trade off between lending less money at 28% and more money at a mixture of rates. I worked out what percentage of loans would be included for each interest rate in each market and used that to help me to set my interest rate. Bondora could do something similar to tell people that if they offer only 28% they will lose x% of all requests and make their lending slower by y. Last summer this was too hard to recognise because there was no useful data for lenders to see. Bondora could fix that with better data and tell people what percentage of loans they would have been part of in the last six months at each rate, when people are setting the rate.

I chose six months deliberately. Z o p a  tried this sort of thing for a system like the current interest rate queue but used a time period that was too short and as the results were unstable. But that was with a lowest rates win system and Bondora doesn't need fast response to changing interest rates because the rate of change of lender interest rate requests is much more stable.

This post is now wrong because of clarifications from Bondora so I've struck it out.

OK, it is clear how to respond to this new queue. I will pause all of my profiles that lend for terms lower than 60 months and change to bidding only at 28%. This is the way that I can maximise the number of the most desirable loans that I receive.

Others can make different bids and each time they get a loan they remove themselves from the queue in front of me and help me to get the most desirable loans that they do not get because they already used their queue position.

One untrue assumption is that loans at 28% have equal risk. A more optimal strategy looking at loan risk might be to try to bid at a little under 28%. But that strategy may be less good than the higher ease of selling a loan at 28% on the resale market at no or low discount or for a profit.

I think I understand the new system and I have a feeling that the achievable rate of lending will depend far more on the number of loans v number of investors.  The current 'incentive' to lower profile rates to increase lending rate will probably under the new system result in a higher % of lower rate loans ..... but that of course depends on how quickly the cycle turns and the aforementioned  ratio of investors against loan requests.

I understand it that way.

That would mean that it is not a disadvantage to set the profile for EE A1000 loans to say 18%. Chances in the queue for EE A1000 28% loans are the same as if the profile had been set outright at 28%. So it is not a disavantage that this profile participates in EE A1000 loans for 18-27% percent too, because it does not influence that specific queue.

Would be great if we could see the position of the profile in each queue, but I doubt it.

Does anybody know when the new system will be starting?

Looking at the newsletters that I have received the best indication I have is 'early May'.  Looking at the Bondora forum I have a feeling it is the 7th - can anybody confirm/deny this?

My profiles will certainly need some amendment but I don't want to change them until it is really necessary.

Thanks for that James - the newsletter had found its way into Junk at my ISP so I was obviously a little behind the times.

I'm tempted to raise my profiles to high levels and see if they tick over .... but I'm not certain if that has relevance any more!  Need to have a read up on the changes.