Ratesetter - 1yr Market

bsms1147

Knapper wrote: »

...

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. ...

If a borrower borrows £1200 at 5% APR interest, their total interest over the year is not £60 and their monthly repayment is not £105.

Your erroneous calculation seems to create money (eg if monthly repayments were made, you could reinvest this in the monthly market, and thus generate a higher return overall etc)

£1200 borrowed at 5% APR would be paid back monthly at £102.67, with the total amount payable £1,232.02, including £32.02 of interest.

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%.

If you as the lender reinvested these monthly repayments (remembering that they're £102.67, not £105, and total interst is £32.02 not £60) as you'd suggest (~3% APR monthly rolling), you wouldn't be making any more than if it were all paid it all back in one go (in fact it would be slightly less as ~3% < 5%).

If the borrower were paying back £105 a month (£1260 in total) that APR for them would be closer to 9.6%

So once you've taken that all into account you've squared that circle your created.

(Academic as the 1y market as you say is paid back at term)

Knapper

Ah well I wasn't talking about APR, I was talking about flat rate interest percentages.


In my RS account it shows me the monies I have lent out and the "Interest Due" which is flat interest. For example for a £1000 loan at 5% it shows interest due of £50.




Now that I have looked I've seen something that is a little concerning.


I'm lending ONLY in the 1yr market but it is clear that some of my money has been matched to loans which only have 5 months remaining !!!


Is that normal?




So in 5 months time I'm going to have to re-invest it again.
Bit of a nuisance really.

firestone

Knapper wrote: »

Ah well I wasn't talking about APR, I was talking about flat rate interest percentages.


In my RS account it shows me the monies I have lent out and the "Interest Due" which is flat interest. For example for a £1000 loan at 5% it shows interest due of £50.




Now that I have looked I've seen something that is a little concerning.


I'm lending ONLY in the 1yr market but it is clear that some of my money has been matched to loans which only have 5 months remaining !!!


Is that normal?




So in 5 months time I'm going to have to re-invest it again.
Bit of a nuisance really.

Yes you are earning a flat £50 but you have sort of come back round to your first question.The 1 year is interest only so that's why you are better off then if you was able to be paid monthly as you wanted as your not taking money out to invest at a lower rate.But that's why in the 5 year i and probably others i assume only reinvest at the same or better rate to keep earning the same across all loans
Also its not unusual to get shorter term loans as you have probably bought a sell or even get early repayments on your loans (had more then a couple repay after a month)