Ratesetter - 1yr Market

Knapper

Appreciate the various replies.


Some thoughts.


Firstly I DO appreciate that I have committed to lend my money for a specific period of 1 yr. No issues in respect of that.


Understand that I am NOT seeking to remove my money.
I am simply seeking to have the capital and interest monthly repayments re-invested in the rolling market during that 1yr period.


My take on the whole thing is that Ratesetter obviously operate a "Spread". i.e. As a lender I elect to lend at X%. Ratesetter match that money to borrower loans which they are charging the borrower Y% where Y is naturally bigger than X.


Thus the difference between Y and X is their spread, their profit. They will make that spread regardless of anything else.


I see no reason therefore why clients shouldn't be able to have the monthly capital and interest payments invested FOR THEM in the rolling market. RS will still make their spread which is their core business.

Prism

Knapper wrote: »

I see no reason therefore why clients shouldn't be able to have the monthly capital and interest payments invested FOR THEM in the rolling market. RS will still make their spread which is their core business.

There are no monthly interest payments made by the borrower. Its paid at maturity

firestone

Just wonder why you want your interest to go monthly into rolling - maybe quick access? but its an interesting point and would love to know if i'm missing something
Using my account as an example i have nothing in 1 year at less then 5.2% so if i was able to move a monthly payment into rolling i would lose on the rate(and probably have to wait for better then market rate) So using back of a beer mat maths after say 6 months i would half at 5.2% and half at probably 3.2% so does not seem better.

Knapper

Ok Prism, that would make sense.


I've had a hunt around the website "Help Centre" and it says in respect of the 1yr market:


"Your money will be invested in loans with a maximum term of 1 year. "


I guess I wasn't totally confident about that.


By way of explaining here's what I was thinking. . .


People who lend in the 5yr market can, at any time, pull out their money though that will incur a small penalty fee. Suppose then that someone pulls out of their 5yr loan at the end of 4yrs.


To do that the loan has to be handed over/taken up by someone else. I had figured that people lending in the 1yr market might get matched to such a loan, so they would till only be lending for 1yr, but it just happened to be the final year of a 5yr loan. If that did happen then clearly the borrowers will have been repaying their 5yr loan on a monthly basis. So you can see where I was coming from.

Knapper

firestone wrote: »

Just wonder why you want your interest to go monthly into rolling - maybe quick access? but its an interesting point and would love to know if i'm missing something
Using my account as an example i have nothing in 1 year at less then 5.2% so if i was able to move a monthly payment into rolling i would lose on the rate(and probably have to wait for better then market rate) So using back of a beer mat maths after say 6 months i would half at 5.2% and half at probably 3.2% so does not seem better.

A simple example


You lend £1200 @ 5%


So at the end of the 1yr term you will get your £1200 back plus £60 of interest for a total of £1260.


For the sake of argument lets say the borrower is also borrowing at 5%.
From the outset they know the total amount to be repaid will be the borrowed £1200 plus the interest £60 so £1260 total repayment.


Split across 12 monthly payments that means they pay £105 a month. Note that regardless of anything the lender does the borrower is always going to repay that total £1260 @ £105 a month.


So they make the first £105 to Ratesetter. If you could dump that £105 into the rolling market then that £105 is going earn say 3% interest for the remaining 11 months of the loan term.


When the second £105 payment comes in it too could be earning 3% interest for the remaining 10 months and so on for every monthly payment.


By the time the 1 year was up you would have your total £1260 repaid (and thus you get your 5% interest that you specified when you loaned the money) PLUS you would also have all the 3% interest for the monthly payments on top. Overall that would give you a better return than just the initial 5%.


However all of that is rather academic because of what Prism is saying. The people who are borrowing money for 1 year are NOT repaying the loan in monthly chunks


They are just making one single final total payment at the end of the year. On that basis my entire OP and query is invalid. That is so long as Prism is correct about this. I initially didn't think that's how it worked.

Prism

Knapper wrote: »

Ok Prism, that would make sense.


I've had a hunt around the website "Help Centre" and it says in respect of the 1yr market:


"Your money will be invested in loans with a maximum term of 1 year. "


I guess I wasn't totally confident about that.


By way of explaining here's what I was thinking. . .


People who lend in the 5yr market can, at any time, pull out their money though that will incur a small penalty fee. Suppose then that someone pulls out of their 5yr loan at the end of 4yrs.


To do that the loan has to be handed over/taken up by someone else. I had figured that people lending in the 1yr market might get matched to such a loan, so they would till only be lending for 1yr, but it just happened to be the final year of a 5yr loan. If that did happen then clearly the borrowers will have been repaying their 5yr loan on a monthly basis. So you can see where I was coming from.

Yes, I can see. Its only the 1 year that is different. They discuss it a little here

https://www.ratesetter.com/blog/article/managing-supply-and-demand

firestone

Knapper wrote: »

A simple example


You lend £1200 @ 5%


So at the end of the 1yr term you will get your £1200 back plus £60 of interest for a total of £1260.


For the sake of argument lets say the borrower is also borrowing at 5%.
From the outset they know the total amount to be repaid will be the borrowed £1200 plus the interest £60 so £1260 total repayment.


Split across 12 monthly payments that means they pay £105 a month. Note that regardless of anything the lender does the borrower is always going to repay that total £1260 @ £105 a month.


So they make the first £105 to Ratesetter. If you could dump that £105 into the rolling market then that £105 is going earn say 3% interest for the remaining 11 months of the loan term.


When the second £105 payment comes in it too could be earning 3% interest for the remaining 10 months and so on for every monthly payment.


By the time the 1 year was up you would have your total £1260 repaid (and thus you get your 5% interest that you specified when you loaned the money) PLUS you would also have all the 3% interest for the monthly payments on top. Overall that would give you a better return than just the initial 5%.


However all of that is rather academic because of what Prism is saying. The people who are borrowing money for 1 year are NOT repaying the loan in monthly chunks


They are just making one single final total payment at the end of the year. On that basis my entire OP and query is invalid. That is so long as Prism is correct about this. I initially didn't think that's how it worked.

you've really got me thinking now:)
While its only a hypothetical question you posed - you say they will always pay £105 per month and get £60 interest but don't think that's true as each payment taken out would reduce the interest and capital on an amortizing loan.Lending Works have a good feature where say for their 5 year loans they show every future payment over the 60 months as the capital and interest reduce to zero.
But using your example anyway of after 2 months of £105.For 10 months you would have £990 @ 5% and £210 @3% so can't see the benefit
But am going to get the calculator out in case i'm missing out on some dosh:)

redpete

The way that the three markets is made clear to lenders, nothing hidden. Not sure why it is so important to you exactly what happens to the money they have loaned out from your deposit - I f you put money into a 1 yr fixed savings account with another institution you have no idea what the company does with the money you have loaned to them

Knapper

firestone wrote: »

you've really got me thinking now:)
While its only a hypothetical question you posed - you say they will always pay £105 per month and get £60 interest but don't think that's true as each payment taken out would reduce the interest and capital on an amortizing loan.

Well I have never borrowed money via Ratesetter so couldn't comment really.


However when people go buy a car for example, and buy it on finance, or get a bank loan, then they always establish the interest rate upfront and thus the TOTAL REPAYMENT. It's a fixed entity. They then just divide the Total Repayment by the number of months of the loan term and that provides the fixed monthly payments.


On a general basis, if you were the money lender then:


1) Monthly payments reduces your risk of total default. You might get 6 months of payments before a default happens


2) The monthly payments could be invested to earn more money whilst the loan runs its course. They could simply go towards another loan or go into a bank account which pays interest.




If the borrowers don't have to make monthly payments (as Prism suggests is the case) then


1) They could default in which case the entire loan amount will be lost


2) There are no monthly payments for you to make further interest from. Instead the borrowers themselves could be investing their money for the year before they then repay the final amount.

firestone

true the repayments may stay the same but its phased over time so at the start your paying more interest and at the end more capital (but not sure how that helps with your RS question)