Harmoney

[Cool Bear]

Under the original fee structure, early repayment hurt. Not so much now but there is still a re-investment lag. Just to confirm. Your figures represent the average age at which early repaid loans were repaid rather than average loan life? I think that must be the case.

Yes, those old loans hurts as early repayment attract a 1.25% fee on the amount repaid.

Currently, early repayments does hurt us if the loan has PP. As we have to pay the whole PP sales commission to HM. That is why some of our outstanding principals for fully paid loans are negative (meaning we owe HM money) instead of zero.

[Vagabond47]

The fact that, on average, a 60 month term loan is paid of in less time than a 36 month term loan is just nuts? Perhaps it's human nature to take the extra time and perhaps most don't realise the extra Interest paid...

When there are no barriers or penalties to repaying early I used to borrow money at the longest term, and make extra payment whenever I could, then if something unexpected cropped up I could just make the minimum payments for a while then get back to paying it down as fast as possible.

[myles]

When there are no barriers or penalties to repaying early I used to borrow money at the longest term, and make extra payment whenever I could, then if something unexpected cropped up I could just make the minimum payments for a while then get back to paying it down as fast as possible.

I can see how that would be a more flexible way to do it - it's just that these 60 Month loans are being paid back, on average, in less than 10 months. I find it difficult to see why you wouldn't take the loan as a 36 Month loan and pay less interest - surely you would be able to make the slightly higher monthly payments if you have the ability to pay it off in 10 months?

Having said that - most of these are probably re-writes, so they aren't being paid off, just re-negotiated...

[myles]

Sorry, got called away and didn't get back to this...

My view is that early repayment does not affect the returns or risk. If you accept a certain risk/returns and if the loan is repaid early then you can always invest the proceeds into a similar loan.

This has been my thinking, just thought it worth seeing how others see it.

Forgot to say, I think the remainder of the original cohort will become a bit more risky with these early repayments as they are prior to the default peak and thus the bad loans are less diluted.

I think the default peak, as per the Harmoney hazard curve is somewhat misleading - yes, most defaults occur at the highest point on the hazard curve, but this is were most loans occur. The chances of a single loan defaulting later, don't appear to changed all that much (some grades appear to get a little worse, some get a little better). I'm still working on the best way to show this... I consider the hazard curve as showing the frequency of defaults not the probability/likelihood of defaults - if that makes sense.

Currently, early repayments does hurt us if the loan has PP. As we have to pay the whole PP sales commission to HM. That is why some of our outstanding principals for fully paid loans are negative (meaning we owe HM money) instead of zero.

Yes, those pesky PP's do have some drawbacks. Really need to work through some examples and try to determine if they end up as a gain or a loss on the majority of short term loans...

[myles]

Your figures represent the average age at which early repaid loans were repaid rather than average loan life? I think that must be the case.

Yes - average age of Paid Off​ loans.

[Vagabond47]

I can see how that would be a more flexible way to do it - it's just that these 60 Month loans are being paid back, on average, in less than 10 months. I find it difficult to see why you wouldn't take the loan as a 36 Month loan and pay less interest - surely you would be able to make the slightly higher monthly payments if you have the ability to pay it off in 10 months?

Having said that - most of these are probably re-writes, so they aren't being paid off, just re-negotiated...

Yep, I suspect so, the number of loans that I look at that are <9 payments on the old loan and now looking for a rewrite. These people need educating on how to manage their finances.. but then how would we make money.. *shrug*

[myles]

Not of huge value, more for conversation/reference:

Google Map of Defaults

Population of loans greater than 10 loans just to remove the odd ones in Australia and misspelled names etc...[source unique.csv].

[IntheRearWithTheGear]

Cool, we can get out our pitch forks and pay them a visit....... who is with me ?

[BJ1]

I like the pitchfork, but perhaps more useful to avoid loans like this:
HM291018.JPG

[Gill]

Am I missing something here? $45k for home improvements when the person is renting?

Capture.JPG