Since we started our wee investment experiment a bit over 7 months ago now, I thought it time for a performance update.
Vital statistics as at today are:
We have chosen the highest interest (and highest risk) loans for this experiment.
The graph below shows how many notes we have invested in each grade.
Whilst the risk involved with peer-to-peer lending can be reduced due to spreading your notes over many different loans, the default risk and pay-off risk are still real factors that will affect your realised gross interest.
The spreadsheet below shows the completed (either paid off or written off) loans that we have already accumulated after only 7 months.
As can be clearly seen by this data, we are not getting anywhere close to the 25% estimated by Harmoney.
We expect a certain amount of bad debt due to the high risk loans that we are investing in, but what we didn’t expect was for so many of our loans to be paid off quickly. This started ringing alarm bells for me, so I looked into it a bit further..
After 3 months of regular payments, Harmoney borrowers are offered a chance to top up their loan. This top-up is set up in the system as a new loan and if it is ‘funded’, it pays off the borrower’s current loan. The investor receives their investment back – less the service fee of 1.25% (calculated on the total payment of principal and interest).
Up to 8 of the loans in the above spreadsheet may have been ‘re-written’ as top-up loans (they were paid off more than 3 months after their start date). Early pay-off of loans adversely affects the return to the investor.
What do you think of the way that Harmoney is structuring these ‘re-writes’ from an investor’s perspective?
Please leave your comment below.