Individual performance is as much a matter of luck as it is of an individual's loan picking nous, especially if loan numbers are small in the portfolio, which they are for most retail customers.
I don't see the correlation with luck. Is it luck when you pick shares from one company over another? There is known risk of failure, that's not luck in my thinking.
If you go back away in this thread you'll find a list of loan types to select and avoid based on info from overseas - I can only say that it significantly improves my return by taking those into consideration at both a filter level and at an individual loan level.
I don't see the correlation with luck. Is it luck when you pick shares from one company over another? There is known risk of failure, that's not luck in my thinking.
If you go back away in this thread you'll find a list of loan types to select and avoid based on info from overseas - I can only say that it significantly improves my return by taking those into consideration at both a filter level and at an individual loan level.
And good on you myles - for doing that.
I have been slowly reading through this thread when I get the time, but 213 pages is still a lot to go through. Still, it has been time well spent generally, and I have learnt a few things here from posters' (including you) insights as well as from their experiences. Thank you all.
In business, including stockpicking and loan selection, you can reduce risk by thoughtful action, but never eliminate it fully. The 'known risk of failure' is a probability generated from history, but it is best used with the knowledge that it cannot guarantee any future outcome. We need back view mirrors in cars, but we drive looking out through the windshield. Humans have limited vision. The rest is luck, in my book, as it can not be pre-quantified. So, there is an element of luck when you pick shares from one company over another (without discounting that you may have picked based on your research, but research itself is limited in the number of variables that can be researched etc...)
Also, even at (the still declining) 12.4% retail RAR of the pick n choose segment, HM offering is only second best now, since it reduced the reward for carrying unsecured loans 2 years ago (by raising its fees to 20%, 17.5% etc.) and the non tax-deductibility of its (comparatively much higher) defaults for the 'real/retail' peer. Watching this space with interest.
Harmoney has said that charge-offs are running at about 22% of gross interest.
The 12.4% retail RAR is net of the 20% fee, for a smaller retail investor, and charge-offs.
So that must mean the average investor must earn approx 21% gross interest with tax at 33% comprising 6.6%.
Approximate figures for retail investors paying the maximum fee rate:
Gross interest = 21%
less:
Charge-offs =4.4%
Fees=4.2%
RWT @33% of gross interest= 6.9
So 5.4% is my back of the envelope guestimate of the after tax return for an average smaller investor who can tax deduct neither fees nor charge-offs and 6.7% for someone who can tax deduct the lender fee.
Harmoney has not definitively stated that fees are tax-deductible for everyone. Harmoney points out, each taxpayer should seek advice on the status of fees and charge-offs. So small investors should also factor in the cost of that independent researched advice on the deductibility of both fees and charge-offs. Does Harmoney anticipate that fees cannot be deducted by some of its lenders/investors? If that is the case, I think it is most likely to be small retail investors who would not be able to make the tax deductions. If everyone could deduct fees, why doesn't RWT take into account the fees that are automatically levied by Harmoney on gross interest? Definitely DYOR.
Going over repeated ground, it is not Harmoney's responsibility to sort out individuals tax liability.
RWT has to be deducted by law. That is the end of their involvement.
Fees you pay are deductible as a cost of earning that interest.
If you lend money on mortgage through a lawyers firm the deduct from the interest a handling fee. This is also deductible. The same as any interest earned on money held in trust by lawyers that pays out interest.
Go back over earlier pages in this thread. It has been discussed to death.
If everyone could deduct fees, why doesn't RWT take into account the fees that are automatically levied by Harmoney on gross interest? Definitely DYOR.
Posting so you can put this behind you
Section RE 12 (Income Tax Act 2007) Interest
When this section applies
(1) This section applies when a person makes a payment of resident passive income that consists of interest.
Calculation of amount of tax
(2) The amount of tax for the payment that the person must withhold and pay to the Commissioner is calculated using the formula—
(3) In the formula,— (a)tax rate is the basic rate set out in schedule 1, part D, clause 3 or 4 (Basic tax rates: income tax, ESCT, RSCT, RWT, and attributed fringe benefits):
(b) interest paid is the interest paid before the amount of tax is determined:
(c) foreign withholding tax is the amount of foreign withholding tax paid or payable on the interest paid.
As you can see from the RWT formula, Harmoney is not allowed to taken fees into account when deducting RWT. If you feel strongly about this, you can contact the policy division at the IRD to recommend changes to the legislation.
(1) This section applies when a person makes a payment of resident passive income that consists of interest.....
So Squirrel P2P can deduct RWT on the net interest (after deducting its fees) paid to lenders who lend to borrowers on the Squirrel platform because it is more like a traditional finance company and the income its lenders earn is even more passive than the interest earned by those who lend via Harmoney?
It is always good to read the blog here as I always learn a thing or two. People have been saying if you pick your loans right you can do alright on Harmoney, I have been trying to pick loans with an aim that the borrower doesn't default. What are your criteria to pick a loan? I myself look at these points:
- House owner or renting ( I give preference to homeowners)
- Time at the employer (the longer the better)
- Compare the monthly loan payment to their monthly income to judge if they can afford it.
Here are some of the loans which are in arrears, would you have picked these loans or not? As they looked very good to me however they are in arrears
Here are some of the loans which are in arrears, would you have picked these loans or not? As they looked very good to me however they are in arrears
Gill, if you search back through this thread you'll find some guidance on which loans are likely better than others.
Of the loans you've listed - my quick comments:
99244 - I would not have picked this loan as the repayment amount is more than 15% of the borrowers income (just, but that's my cutoff). I always see having made previous payments as a significant positive - the worst charge offs are from those who make no payments at all. Everything else looks okay, but the language used might be enough to put me off. 31-60 days in arrears is not really anything to worry about - many loans get into this range and then come good.
99236 - Not showing the borrower detail...
30346 - I don't typically take 'Clear Overdraft' loans, time at residence of 0 is something to consider. The wording again would likely put me off - when someone suggests they are closing off all their debts by taking out another debt kind of makes me think they don't quite get it, but it could just be poor wording.
Note that I don't take any A grade loans so I don't even see these loans as they are filtered out - that's just my approach to get a better return.
I have been trying to pick loans with an aim that the borrower doesn't default... Here are some of the loans which are in arrears ... they looked very good to me however they are in arrears
Your picks seem consistent with your aim. I can't fault either. The fact that they are in arrears, is just noise. While the aged loans are more likely to default, any loan can default at any time. You think your criteria is reducing risk, and the historical probabilities seem to agree with you...
Originally Posted by Gill
would you have picked these loans or not? What are your criteria to pick a loan?
I rely predominantly on HM grading, as I feel the risk is already priced in the return.
So Squirrel P2P can deduct RWT on the net interest (after deducting its fees) paid to lenders who lend to borrowers on the Squirrel platform because it is more like a traditional finance company and the income its lenders earn is even more passive than the interest earned by those who lend via Harmoney?
Well compared and argued, Bj. I think deducting RWT on Gross Interest is outrageous, especially as fee is calculated and deducted inhouse by P2P providers simultaneously and it is a pre-quantified number, which has nothing to do with their client's tax rates or position. In my book, they do it for OPM, because they can.
Lending Crowd isn't guileless either, as it currently does not support RWT exemptions, even though it has the ability to apply variable rates for deducting client's RWT. Still a lot of wild west stuff that needs to be sorted if P2P industry wants some respectability...
Originally Posted by beacon
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