Harmoney

[icyfire]

Neither Lending Crowd nor Squirrel Money have loan rewrites. Harmoney charges $500 for topping up an existing loan (i.e rewrite) while banks only charge $150. Perhaps that's the main reason Harmoney has found itself in trouble with ComCom. We will soon find out.

[myles]

Neither Lending Crowd nor Squirrel Money have loan rewrites. Harmoney charges $500 for topping up an existing loan (i.e rewrite) while banks only charge $150. Perhaps that's the main reason Harmoney has found itself in trouble with ComCom. We will soon find out.

No it's not the main reason for the court request for clarification... At this point they are not 'in trouble', the court has been asked to clarify the fee - full details are available on the Commercial Commission's website if you are interested in factual details.

[icyfire]

Here is the link to Commerce Commission's Media Release about filing proceedings against Harmoney over its platform fee

[myles]

Here is the link to Commerce Commission's Media Release about filing proceedings against Harmoney over its platform fee

Take the time to read past the headlines - the links are all there - you'll find that the initial questions being ask of the courts are to clarify the fee...until that happens any other suggested proceedings are moot.

"The Commission has filed an application under section 100A of the Commerce Act asking the Court a number of legal questions and it expects that the answers will provide more clarity about how consumer credit laws apply to loans offered by Harmoney and other peer-to-peer lenders."

[SilverBack]

You'd have to expand on how that can be. If you have an A grade loan paying 6.99% interest and you pay (I assume by the number of loans you have) a 15% fee on that interest, then your reduction is only 1.05%, where does the other 3.95% disappear too, to make up your suggested 5% drop (1.99% return)?

I have dug a little deeper. You need to understand that I am using empirical data from my own repaid loans and not applying any theory here. The service fee across my data varies from 1.25% of gross interest + principal repaid to 17.5% of gross interest only to 20% of gross interest only. This is because Harmoney changed their commission structure part way through the period and then I had to build my portfolio past $10K to move from the 20.0% to 17.5% rate. For the figures below, I have only used the loans with a 17.5% fee.

The 5% loss of interest was an average across all my repaid loans (all grades and all service fee rates) and only served me as a "rule of thumb". If I use only 17.5% fee the average by grade is:

A - no data
B - 3.7%
C - 4.8%
D - 6.4%
E - 9.9%

These figures are still only approximate because I have not made a true calculation of the net return based on fixed monthly repayments of interest and principal whereby the principal steadily reduces during the period of the loan. Instead I made a simplified calculation of return by using the net interest (before tax) and the number of days that the loan was active. This means that the above figures are higher than the true rate.
I have found considerable variation in the "loss of interest" even across individual grades rather than class of grade. For example, my C3 loans vary from 3.7% to 6.8& and D4 loans vary from 5.1% to 13.1%. I actually asked Harmoney about the 13.1% loan and the reason was because although the borrower had the loan for 171 days, they made some large repayments of principal early in the loan. This reduced the total interest compared to making regular monthly repayments.

If I repeat the analysis using only loans with 1.25% service fee then I get:

A - 4.1%
B - 4.4%
C - 4.4%
D - 4.7%
E - 8.4%

One final observation - including repaid loans with payment protection improves the net return considerably but I excluded them from the above figures.

If anyone can point me to an Excel 2010 formula that lets me calculate the effective interest for a loan with regular repayments given principal, number of repayments, regular repayment amount and total interest paid, then I can get more accuracy.

If anyone is still suspicious of this, then I suggest that you simply carry out an analysis of your own repaid loans. It is not hard to do.

[myles]

I have found considerable variation in the "loss of interest" even across individual grades rather than class of grade. For example, my C3 loans vary from 3.7% to 6.8& and D4 loans vary from 5.1% to 13.1%. I actually asked Harmoney about the 13.1% loan and the reason was because although the borrower had the loan for 171 days, they made some large repayments of principal early in the loan. This reduced the total interest compared to making regular monthly repayments

It sounds to me like you are calculating return based on initial investment, not ongoing/current investment - which reduces over time. If the borrower made large repayments early (as you say in the 13.1% example above), then you had a large amount of principal returned to you early that can no longer be considered invested in that loan i.e. you can reinvest in other loans.

If anyone can point me to an Excel 2010 formula that lets me calculate the effective interest for a loan with regular repayments given principal, number of repayments, regular repayment amount and total interest paid, then I can get more accuracy.

XIRR - is the best way to calculate returns on both individual and combined loans - all you need are the dates and amounts of payments and returns (interest + principal).

If anyone is still suspicious of this, then I suggest that you simply carry out an analysis of your own repaid loans. It is not hard to do.

Not suspicious, just think you may not be calculating your returns correctly. I don't see any anomalies (or interest lost) when I do either individual loan or overall loan calculations on my loans. Take a single loan and work it through using XIRR and see if you get expected results or not.

[alistar_mid]

It sounds to me like you are calculating return based on initial investment, not ongoing/current investment - which reduces over time. If the borrower made large repayments early (as you say in the 13.1% example above), then you had a large amount of principal returned to you early that can no longer be considered invested in that loan i.e. you can reinvest in other loans.



XIRR - is the best way to calculate returns on both individual and combined loans - all you need are the dates and amounts of payments and returns (interest + principal).


Not suspicious, just think you may not be calculating your returns correctly. I don't see any anomalies (or interest lost) when I do either individual loan or overall loan calculations on my loans. Take a single loan and work it through using XIRR and see if you get expected results or not.

This, for all the spreadsheeting I have done, all the RAR's etc, the most accurate measure of return, (for harmoney) is XIRR

The dates the money went in, vs when you got it out

Remember to add in the % of your tax return though that's attributable to Harmoney

[BJ1]

Alister, I don't use XIRR but I have been playing this morning. If I assume a loan of $1,000 @15.16% lent on 14/1/17 and repaid with interest on 14/2/17 then my cash received is $1010.9443 after paying 15% fee to Harmoney which is a rate of 12.886% after fees, as expected. However, using XIRR I get 13.67%. Do you get the same? Putting in the full cash flows over 7 months for the actual loan which was repaid after that time, I get 13.62%. It seems that XIRR doesn't accurately calculate returns, but overstates them. Am I doing something wrong?

[Cool Bear]

Alister, I don't use XIRR but I have been playing this morning. If I assume a loan of $1,000 @15.16% lent on 14/1/17 and repaid with interest on 14/2/17 then my cash received is $1010.9443 after paying 15% fee to Harmoney which is a rate of 12.886% after fees, as expected. However, using XIRR I get 13.67%. Do you get the same? Putting in the full cash flows over 7 months for the actual loan which was repaid after that time, I get 13.62%. It seems that XIRR doesn't accurately calculate returns, but overstates them. Am I doing something wrong?

Hi BJ1

Your post got me stumped for a while too. Had a bit of time while taking a break from my work and did some testing of XIRR.

In the end I realised that the XIRR is correct. The difference is compounding of interest.

Say net interest is 12%, so invest $1000 on 1 Jan and you will get back $1010 on 1 Feb. XIRR is 12.4296%
but invest $1000 on 1 Jan and you get back $1130 (13 months) on 1 Feb the next year. XIRR is 11.924%

In the first case, IF you reinvest the $10 interest on 1 Feb at 12% for the rest of the year (11 months), you should get $124.29 interest in total after 12 months - so XIRR is correct
conversely, the second senario is that had you invested the $120 interest for the first 12 months for that extra month, you should get more than $130 in total, so the $130 is less than 12% and the XIRR of 11.924 is correct.

[BJ1]

Cool Bear, I'm not convinced. Shouldn't the formula return the exact interest rate, calculated on the cash flows stipulated and not make assumptions about reinvestment of cash not recorded in the stipulated flows? For a one month period it should not produce an outcome 3.58% above the actual one month's interest. Should there be compounding in a one month investment? I'll have another play if tomorrow has free time.