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Welruc

Why do some people bid on loans at 7 and 8 precent? I dont know if this is a stupid question but when i bid on a loan i look to get the highest interest rate i can.

Does this make me a greedy fecker or is there something im missing?

Bubbaclaus

deuceswild wrote: »

Why do some people bid on loans at 7 and 8 precent? I dont know if this is a stupid question but when i bid on a loan i look to get the highest interest rate i can.

Does this make me a greedy fecker or is there something im missing?

I'd imagine it's friends/family. That or people are dumb.

Squall Leonhart

I do my damn best to get a high rate, but suppose some are patrons of a business, or family, personal friends etc... But... Naaaah feck that haha!


SK electrical services closing at 9, looks like a good chance to get a 13.8%+ loan

Squall Leonhart

Got a 14% loan, happy with that, they're hard to get.

Sceach, well done on your 14.1!

Wheety

That's if they accept it. Closed at average of 12.73%.

Rota Contracts closed 5 days ago. Wonder if they'll accept.

Squall Leonhart

Wheety wrote: »

That's if they accept it. Closed at average of 12.73%.

Rota Contracts closed 5 days ago. Wonder if they'll accept.

You're completely right of course, I'm counting chicken before they hatch. Still waiting to see if Athboy Plant Hire accept their loan, but it's only 2 days closed, so no panic. Have a 13.4% bid in there. To be honest, anything equalling or above 13% I'm happy.

Squall Leonhart

SK Electrical have accepted their loan already, got my 14%

Strettie11

Stela Foods

Utterly amazed this loan got funded @ fixed rate of 8.5% so many red flags I would not have bid @ 15% if it was offerred

tomwaits48

the amount of these 8.5% loans are starting to annoy me

sceach16

deuceswild wrote: »

Why do some people bid on loans at 7 and 8 precent? I dont know if this is a stupid question but when i bid on a loan i look to get the highest interest rate i can.

Does this make me a greedy fecker or is there something im missing?

I bid as high/low as I think I can get. I am looking after me. Anyone who wants to bid at any rate they want is free and welcome to do so. Their reasons/logic are for them. This was discussed earlier in this thread. People often start bidding low (probably cos they are getting 0.01% in banks and think 7 or 8 is brilliant).... they tend to bid higher later! However if people are happy at 8.5%, fair play to them. I reckon NO is the answer to both your questions.

sceach16

Strange...I got en email today (27 May lunchtime) that a post about Lauri Management was on the site but I can't find it.

Squall Leonhart

sceach16 wrote:

Strange...I got en email today (27 May lunchtime) that a post about Lauri Management was on the site but I can't find it.

Just shows up in my list of loans with the rest of them.

Misspelled as Lauri Managment Limited mind you

For reasons unknown even to myself I put down a small bid on it, boredom maybe!

sceach16

Squall Leonhart wrote: »

Just shows up in my list of loans with the rest of them.

Misspelled as Lauri Managment Limited mind you

For reasons unknown even to myself I put down a small bid on it, boredom maybe!

Saw that, surprised ! to be clear, I got an email from Boards that there was a post on this ( Boards) site but it not now visible to me.

Squall Leonhart

Ah right, yes I saw that earlier too. Some lad asked what people thought about the loan, he was going to put a higher than normal bid and feed other bids during the year from repayments.

He must have deleted the post for some reason.

Haha yeah I think boredom is an awful thing when you've a few quid burning a hole in your pocket. Could be worse I guess, could have spent it on pints!

sceach16

tomwaits48 wrote: »

the amount of these 8.5% loans are starting to annoy me

At this stage, U must be highly irritated ! I don't blame you:eek:

hgfj

This is how I see it.

I have 1000 euro to invest.
I spread that over 20 loans of 50 euro each.
I get a rate of 12% on each loan.
After LF commission of 1.2% effective loan rate is 10.8%.
Each loan then delivers a return of 8.76 euro in interest over the 3 years, or 175.2 euro for all 20 loans.
That equates to 17.52% over the three years.
Which in turn equates to 5.84% per year.
Thats one way of looking at it.
But then what about the Taxman?
If you are in the 40% tax band you pay 70.08 in tax leaving you with 105.12 in profit. Thats 10.512% over 3 years which equates to 3.504% profit per year.
If you are in the 20% tax band you pay 35.04 in tax leaving you with 140.16 in profit. That's 14.016% over 3 years which equates to 4.672% profit per year.
But here's the thing.
If my understanding is correct.
If any of these loans default at any time during the loan period you will still have to pay tax on the interest received from that loan up until they defaulted.
For instance, if a loan defaults after one year into the loan you will by then have received 4.68 in interest and 14.90 from the principal.
So you will have lost 30.42 plus another 1.87 if in 40% band, or .94 if in 20% band.
So 19 loans complete their repayments earning you 166.44 ( 8.76*19 ) in interest over the 3 years.
One loan defaults after 12 months leaving you with a loss of 30.42 but earned interest of 4.68.
The interest earned over the 3 years becomes 166.44 plus 4.68 = 171.12.
After tax that leaves you with either 102.64 or 136.96 profit depending on the tax band.
Then you have to deduct the loss of the defaulted loan of 30.42 and your profit becomes either 72.22 or 106.54.
7.22% over 3 years equates to 2.4% per year
10.654% over 3 years equates to 3.55% per year.

Thats my understanding. I could well be wrong.

To put it another way

Say I make a single loan of 1000 at 12%. That loan then defaults after one year. I receive 93.70 in interest and 299 of the principal. I have made a loss of 607.30 but still have to pay tax on the 93.7 earned in interest which increases my loss to either 644.78 or 626.04.

m320325

hgfj wrote: »

But then what about the Taxman?
If you are in the 40% tax band you pay 70.08 in tax leaving you with 105.12 in profit. Thats 10.512% over 3 years which equates to 3.504% profit per year.
If you are in the 20% tax band you pay 35.04 in tax leaving you with 140.16 in profit. That's 14.016% over 3 years which equates to 4.672% profit per year.

USC and PRSI also needs to be included:

PRSI 4%

USC
1% €0 to €12,012
3% €12,013 to €18,668
5.5% €18,669 to €70,044
8% > €70,044

- You also have to allow the time it takes to find 20 good loans to invest in (few days or weeks), so it will likely be slightly longer than 3 years.

- The principal is been returned, so after the end of year 1 you will probably have approx 300 in your account which can be withdrawn and invested/used elsewhere for the final 2 years

hgfj

Yes, I hadn't taken PRSI or USC into account. Didn't even think of it tbh. I wonder though does the tax have to be payed each year? Or can it be payed after the end of the three years? Paying tax on interest earned before the principal has even been paid off leaves less to invest on a yearly basis. Anyway, the more I think about it the less inviting it all looks. Risk/reward is very high. I've already had 2 defaults costing me a total loss of 1,350 euro after interest received. Sickens me that I can't claim that loss against the interest I've received from the other loans.

sceach16

hgfj wrote: »

Yes, I hadn't taken PRSI or USC into account. Didn't even think of it tbh. I wonder though does the tax have to be payed each year? Or can it be payed after the end of the three years? Paying tax on interest earned before the principal has even been paid off leaves less to invest on a yearly basis. Anyway, the more I think about it the less inviting it all looks. Risk/reward is very high. I've already had 2 defaults costing me a total loss of 1,350 euro after interest received. Sickens me that I can't claim that loss against the interest I've received from the other loans.

Few comments. Yes, I agree with your overall point that expenses ie. bad loans should be allowed against income. But , subject to the size of your portfolio, no loan should be much more than more than (say) 2% of your portfolio , in my case, it is less than 1.5% and reducing. Going back to earlier comments, your rate of return presumes you re invest capital repayments at about the same rate. If u get capital back and don't treinvest it, what do u do with it?

hgfj

The original post was just as an example. 20 loans made in one day. Not realistic but could be possible over the course of three weeks. I've made about 140 loans at varying rates to about 80 businesses over the course of a year and a bit. 2 defaults and 2 loans paid off early. Going by the info on my portfolio page on LF my average interest rate currently is 13.2%. So far I've reinvested everything back into loans, capital plus interest. I took on a few of those 8.5 loans because I prefer the idea of a loan being for a year rather than three. On a three year loan it take about 2 1/2 years to get principal back so any default before that time is up incurs a loss. A default after that is a bummer but at least I wont have incurred a loss. A one year loan doesn't pay off until the last payment ie the twelfth payment is where you get any profit. I worked out, using an online loan calculator that LF directed me to, that the repayments equate to a return of only 4% before tax, prsi, usc, etc. I won't be doing any more of them. My problem is that so far I haven't seen any return from the defaulted loans yet. One of them is a year old now. Until I see how these defaults are going to be resolved and how LF handles them I think I'll wait before making any more loans.

hgfj

This is the site that LF directed me to to calculate repayments, in case anyone's interested -

doubleudoubleudoubleu.thecalculatorsite.com/finance/calculators/loancalculator.php

lcwill

hgfj wrote: »

Yes, I hadn't taken PRSI or USC into account. Didn't even think of it tbh. I wonder though does the tax have to be payed each year? Or can it be payed after the end of the three years? Paying tax on interest earned before the principal has even been paid off leaves less to invest on a yearly basis. Anyway, the more I think about it the less inviting it all looks. Risk/reward is very high. I've already had 2 defaults costing me a total loss of 1,350 euro after interest received. Sickens me that I can't claim that loss against the interest I've received from the other loans.

Does anyone know anything about investing on LinkedFinance through a business?

I know that it is possible on P2P lending sites outside Ireland and that there are certain tax advantages.

Squall Leonhart

Looks like my absolute ignorance has come to the fore again.

For some reason I thought that any interest I made on loans would be mine, less DIRT @ 41% and that'd be it.

From the lengthy posts above, it seems much more complex than that. Is the 59% which is left after DIRT counted as income, and charged at my marginal rate?

E.g, say I earn 100 in interest, taxman initially gets 41eur, is the 59eur left than considered as income to be taxed at - say - 40%, plus 7% USC, PRSI etc?

Essentially meaning 100eur in interest would yield somewhere in the region of 30euro actually "take home" if in the higher income tax band?

This makes a right feck of the whole idea. Meaning realistically I'd have to have quite a large sum invested in order to make anything out of it, and not without its risks at that.

m320325

Squall Leonhart wrote: »

Looks like my absolute ignorance has come to the fore again.

For some reason I thought that any interest I made on loans would be mine, less DIRT @ 41% and that'd be it.

From the lengthy posts above, it seems much more complex than that. Is the 59% which is left after DIRT counted as income, and charged at my marginal rate?

E.g, say I earn 100 in interest, taxman initially gets 41eur, is the 59eur left than considered as income to be taxed at - say - 40%, plus 7% USC, PRSI etc?

Essentially meaning 100eur in interest would yield somewhere in the region of 30euro actually "take home" if in the higher income tax band?

This makes a right feck of the whole idea.

AFAIK the total interest received is treated as unearned income, so no DIRT.

If you earn 100 in interest (assuming the 100 is after linkedfinance have already deducted their fee) you will pay tax at marginal rate on the 100 (+ PRSI and USC)

See #26 on the Linkedfinance lending FAQ:

"For almost all Linked Finance lenders, lending will be an investment activity. As a lender, you get interest without a tax deduction. Interest earned from any of our loans qualifies as unearned income for taxation purposes ie. money earned from investments. You will need to show the interest you receive in each tax year on your self-assessment returns."

Squall Leonhart

m320325 wrote:

If you earn 100 in interest (assuming the 100 is after linkedfinance have already deducted their fee) you will pay tax at marginal rate on the 100 (+ PRSI and USC)

AFAIK the total interest received is treated as unearned income, so no DIRT.

Okay that makes it a lot better. LF deduct their fee at source correct?

m320325

Squall Leonhart wrote: »

Okay that makes it a lot better. LF deduct their fee at source correct?

Yes correct

lcwill

Squall Leonhart wrote: »

Okay that makes it a lot better. LF deduct their fee at source correct?

But I don't think their fees are tax deductible....hoping to be corrected on this though.

m320325

lcwill wrote: »

But I don't think their fees are tax deductible....hoping to be corrected on this though.

I never thought about that

Do you know if theres any expenses that could lower the amount of interest which is taxable?
For 2015 I intended paying tax on the full amount of interest received (no expenses), how about others here?

manafana

Their fees have to be tax deductable you can't charge income tax on something and not allow the costs linked to getting that income, allowable expenses as such

JTMan

m320325 wrote: »

USC and PRSI also needs to be included:

PRSI 4%

USC
1% €0 to €12,012
3% €12,013 to €18,668
5.5% €18,669 to €70,044
8% > €70,044

- You also have to allow the time it takes to find 20 good loans to invest in (few days or weeks), so it will likely be slightly longer than 3 years.

- The principal is been returned, so after the end of year 1 you will probably have approx 300 in your account which can be withdrawn and invested/used elsewhere for the final 2 years

Isn't there a CGT tax free allowance that needs to be factored in too? Thanks.