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Post by masquedefer on Jun 29, 2014 9:29:56 GMT
Hi
I'm a newbie so forgive my ignorance. Can anyone explain why the FC fee on my first repayments is much greater than FC's claimed 1% fee? On some repayments it is about 4.6%.
FC quote on fees " Fees are simple at Funding Circle:
1% annual servicing fee on all lending: You only pay this as a business makes a repayment. And if they don’t make a repayment, you don't pay a fee."
Thanks for any enlightenment
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blender
Member of DD Central
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Post by blender on Jun 29, 2014 10:39:48 GMT
Hi masquedefer and welcome.
At the time of a repayment FC charge a fee to the person holding the loan part at that time. The fee is a percentage of the outstanding principal money just before the repayment is made. It is 1% per annum, and so each month the fee charged on each loan part is one twelth of that. So what is a charged to the holder of the loan part on the day of a successful payment of interest and some principal is about 0.08% of the outstanding principal just before the repayment. For example, if you purchase a £100 loan part at auction and keep it until the first repayment you will be charged a fee of £100 x 1%/12 which is about 8p. It reduces as repayments are made.
Some things to note. Firstly that the interest rate and interest payments are irrelevent to the calculation, and this is as it should be because FC does not share in risk and reward and just takes a fee for its services. Secondly unlike interest, which is accrued though the month, the fee is not accrued over the month but is charged for the whole month to the lender holding the loan part on repayment day. So if you buy a loan part the day before the repayment you will get the interest only for one day but you will be charged the whole month's fee. This may seem unfair, but it is very small and usually not worth accruing. You just need to be aware of this in timing purchases on the secondary market.
I hope this helps.
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Post by GSV3MIaC on Jun 29, 2014 14:08:13 GMT
Yep, the simple answer is that is not a fee calculated on your repayments, it is a fee calculated on your holding. What your repayment is each time depends on loan term and interest rate. What the fee is depends on neither of those, just the principal. On a 1%, interest only, loan (luckily there is no such thing) FC's take would be 100% of your monthly repayment!! On a 7% interest only property loan, 1/7th would go to FC each month
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Post by masquedefer on Jun 30, 2014 6:52:43 GMT
Hi.Thanks you very much for your explanations. However I'm not sure that I fully understand it all yet, so please bear with me. My understanding is:- The FC "simple fee" structure means that at the end of a loan I will only have paid 1% of the loan amount (i.e. "the principal"). So that when e.g. a £100 loan is finally repaid, I would only have paid a FC fee of £1, and this being regardless of the length of the loan period.
- Also my understanding is, as per the FC promise, that the fee charged "to date" would only ever be 1% of the principal that had been repaid up to that point in time, i.e. No fee is charged on any outstanding or unrecouped principal.
- Also that in a normal "repayment loan" (i.e. where monthly repayments consist of part principal and part interest), the early monthly repayments consist of larger amounts of interest and smaller amounts of principal, such that the FC fee charged would be smaller in the early months, and that as the interest portion decreases and the principal repayment increases toward the end of loan, the FC fee would increase.
Example: £100 loan, over 1 year @ 4.7% interest (Sorry about this lower than typical interest rate example, it is the only one to hand)Monthly
Repayment Principal Interest 1% fee
8.546 8.154 0.391 0.0815
8.548 8.188 0.360 0.0819
8.547 8.220 0.327 0.0822
8.547 8.251 0.296 0.0825
8.547 8.284 0.263 0.0828
8.547 8.316 0.230 0.0832
8.548 8.349 0.199 0.0835
8.547 8.382 0.165 0.0838
8.547 8.414 0.133 0.0841
8.548 8.448 0.100 0.0845
8.547 8.480 0.066 0.0848
8.547 8.514 0.033 0.0851
102.56 100.00 2.56 1.00
(I hope that the above table retains its format.)Anyway the point of the above example is to demonstrate that the FC fee charged in any particular month should only ever be 1% of the principal that is repaid in that same month and that it increases towards the end of the loan.And my point in all this is, I just do not understand why my first FC fees are nearly 5% of the principal repaid in the first month.All further elucidations are most welcome. I think possibly I should email FC and ask for an explanation.Newbie@FundamentallyConfused.com
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blender
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Post by blender on Jun 30, 2014 8:36:35 GMT
Hi.Thanks you very much for your explanations. However I'm not sure that I fully understand it all yet, so please bear with me. My understanding is:- The FC "simple fee" structure means that at the end of a loan I will only have paid 1% of the loan amount (i.e. "the principal"). So that when e.g. a £100 loan is finally repaid, I would only have paid a FC fee of £1, and this being regardless of the length of the loan period. Response -No, it's 1% per annum of your lending.
- Also my understanding is, as per the FC promise, that the fee charged "to date" would only ever be 1% of the principal that had been repaid up to that point in time, i.e. No fee is charged on any outstanding or unrecouped principal. response -Where is that promise?
- Also that in a normal "repayment loan" (i.e. where monthly repayments consist of part principal and part interest), the early monthly repayments consist of larger amounts of interest and smaller amounts of principal, such that the FC fee charged would be smaller in the early months, and that as the interest portion decreases and the principal repayment increases toward the end of loan, the FC fee would increase. response -Yes the loans are amortised but the fee is on your lending.
... Hi masquedefer, Am bearing with you, but it would be a good thing to read the replies and take account. FC lender fees are (as stated on a public part of the site) 'Fees
Fees are simple at Funding Circle:
1% annual servicing fee on all lending: you only pay this as a business makes a repayment. And if they don’t make a repayment, you don't pay a fee. (comment- Borrowers do not make monthly repayments on interest only loans - will we be charged a monthly fee?)
0.25% sale fee: payable if you sell any of your loan parts to other investors.'
Please note that it is annual and based on the amount of your lending. If you think that FC have said something different to you somewhere else then you will need to take it up with them. They are always changing things without consultation so it could be. You could ask them exactly how the fee on the first repayment is calculated - my one twelfth of 1% of the outstanding principal before the repayment is not stated as such, and so it would be interesting to have it confirmed or not. My understanding is that the fee on the first repayment for a £100 loan is always 8.33p, and today I seem to have been charged 9p for all my parts in 6313.
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Post by davee39 on Jun 30, 2014 8:59:43 GMT
The fee has nothing to do with the principal repaid. It is 1% per year ((1/12)% each month) of the remaining capital.
Month 1 should be one twelfth of 1 % ie on £100 it would be 8.3p, as indicated by Blender. This will fall slightly each month as the capital is repaid.
There are many issues with FC, but I doubt we have ever suffered from Fee Fraud.
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jm72
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Post by jm72 on Jun 30, 2014 9:06:46 GMT
The fee has nothing to do with the principal repaid. It is 1% per year ((1/12)% each month) of the remaining capital. Month 1 should be one twelfth of 1 % ie on £100 it would be 8.3p, as indicated by Blender. This will fall slightly each month as the capital is repaid. There are many issues with FC, but I doubt we have ever suffered from Fee Fraud. The only thing I've noticed is Rounding. I've had certain months where there's been no fee charged, which I can only assume is due to a backlog of being overcharged (through rounding to the nearest 1p) in previous months - probably more of an issue for smaller loan parts than larger loan parts. Otherwise, agree - this has always seemed to work.
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Post by masquedefer on Jun 30, 2014 12:21:48 GMT
Aaaaaaaaaaaaaaaaahhhhhhhhhhhhhhhhhhhhh!  (If only there was a yellow smiley with a light bulb over it to put here). Thank you all so very much for bearing with me. I do finally get it! (If only there was a yellow smiley with a light bulb over it to put here). I double checked my statement and apart from a rounding error to the nearest 1p, each fee does indeed = the capital outstanding multiplied by 1/12th of 1% (i.e. 0.00083333333333333333). As a newbie I've recently invested £31k in over more than 1,200 loan parts, in over 110 businesses (typically £20 loans), so the rounding error will be significant for me, but hopefully as mentioned by JM72 this is periodically adjusted by FC. Once again many thanks. |
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(If only there was a yellow smiley with a light bulb over it to put here).