michaelc
Member of DD Central
Say No To T.D.S.
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Post by michaelc on Aug 15, 2017 15:35:17 GMT
Hi
Sorry for the probably basic question but I couldn't find the answer after searching here and at the FC site.
If I hold a loan for 20 days and then sell it, do I get 20 days of interest minus 0.25% ?
And does it compound?
So for example if I buy a loan part from the primary market which is a £100 part and pays 10% annually. If I sell it after 20 days, do I then receive:
(£100 x 20/365 x 0.1 - 25p) ?
i.e. 54p - 25p ?
Or do I have to wait for at least a full month before receiving any interest?
Thanks a lot for anyone kind enough to check that hopefully simple calculation.
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Post by dan1 on Aug 15, 2017 15:49:18 GMT
Hi Sorry for the probably basic question but I couldn't find the answer after searching here and at the FC site. If I hold a loan for 20 days and then sell it, do I get 20 days of interest minus 0.25% ? And does it compound? So for example if I buy a loan part from the primary market which is a £100 part and pays 10% annually. If I sell it after 20 days, do I then receive: (£100 x 20/365 x 0.1 - 25p) ? i.e. 54p - 25p ? Or do I have to wait for at least a full month before receiving any interest? Thanks a lot for anyone kind enough to check that hopefully simple calculation. Your calculation is correct assuming you sell at par. Don't forget to include the discount/premium. You receive the accrued interest at the time of the sale.
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blender
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Post by blender on Aug 15, 2017 16:50:25 GMT
Yes that's right but there are some complications. FC does not calculate the monthly repayment but has a schedule for each loan part each month (of whole pence). So what happens is that the amount of interest due to be paid that month, from the schedule, is divvied up. For those twenty days you will be accruing interest for that part, and when you sell the buyer pays that accrued interest - so your accrued interest goes down and actual paid interest goes up. The other complexity is income tax, because interest ad fees are treated differently. You cannot really net off the 54p-25p because you will pay income tax on the whole 54p, not on the net. A small point. At least you avoid the 1%, which is paid in full by the lender holding the loan when the repayment is actually paid.
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Stonk
Stonking
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Post by Stonk on Aug 15, 2017 20:08:32 GMT
At least you avoid the 1%, which is paid in full by the lender holding the loan when the repayment is actually paid. Remember, the 1% you mention is per year. The monthly fee for continuing to hold a loan (1% divided by 12, roughly) is cheaper than the fee for repeatedly selling monthly (0.25%) to liberate the accrued interest.
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blender
Member of DD Central
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Post by blender on Aug 16, 2017 8:01:36 GMT
Yes that's right, it is 0.0833% of the outstanding principal per month ( or whatever number of whole pennies is in the schedule). By paid in full I meant that the monthly part is not divvied up for the month, as the interest is when you sell, but is paid in full by the lender holding the part when the next repayment is made. One reason for non-divvying is that FC does not take a fee if the repayment is not made, and therefore cannot anticipate the repayment happening. Lenders have to be able to sell up tradable loans and leave, without their balance depending on any future repayments (outside of lates and defaults etc). The best time to sell a loan part is the day before a repayment is due, but we all know that and so it is harder to do.
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