LinkedFinance - new website

Strettie11

I have taken a slightly different approach to calculating return. I built a model to see what my return would be if I lodged €5000 on 1 Jan in Year 1 to be invested in €50 lots in Grade E & Y loans with the following assumptions:

1. I can only find 10 loans a month to invest in so it takes 10 months to invest my initial investment
2. Repayments from borrowers are not fully invested until following month
3. I withdraw the amount due for tax, PRSI and USC each year to pay my tax bill so it is not available for reinvestment
4. defaults happen at 8% annual rate stated by LF but happen around month 6 of each year so you are earning some interest and defaults do not happen for the full amount
5. the default amounts vary by how many Yr 1, Yr2 or Yr3 loans I have due


It throws up some interesting results

My average gross return after LF fee is 10.30%. Why not 13.8% well it took me 10 months to invest all my money and there are periods after each repayment from borrowers where it takes up to a month to reinvest


My average return after defaults is 5.33%


My average net return after tax is only 0.29% ( assuming tax @ 40%, PRSI @ 4% and USC @ 7%). I am paying tax on the 10.30% return but have no deduction allowable for my defaults which eat up nearly half of that return.

My worry from this exercise is that lenders will aim for the 15% fixed loans while not considering the huge implication of the default rate

Squall Leonhart

Thanks Strettie, really interesting to see a worked example like that. So realistically the A and B loans are a better choice in long run

Strettie11

Squall Leonhart

Doing the same example but investing in Grade A loans with the following assumptions:

1. I can only find 10 loans a month to invest in so it takes 10 months to invest my initial investment
2. Repayments from borrowers are not fully invested until following month
3. I withdraw the amount due for tax, PRSI and USC each year to pay my tax bill so it is not available for reinvestment
4. defaults happen at 1.5% annual rate stated by LF but happen around month 6 of each year so you are earning some interest and defaults do not happen for the full amount
5. the default amounts vary by how many Yr 1, Yr2 or Yr3 loans I have due


My average gross return after LF fee is 5.78%.

My average return after defaults is 4.79%

My average net return after tax is 2.11% ( assuming tax @ 40%, PRSI @ 4% and USC @ 7%).

sceach16

A few general comments.

Lending on a site like this is high risk. It is unsecured lending based on limited financial data to individuals or companies who are unable/unwilling to borrow from conventional lenders. Linked do not give any guarantee and do not carry any risk on the loans. I am not surprised

The Linked proposed rating system allows for likely default rates of 8% per annum. To be blunt, this is crazy. A loss of 8% (not allowable against taxes) means a return of 16% before tax etc (@50%) is needed AFTER linked claim 1.2% .Based on on this, a minimum rate of 17.2% would still give a net nil return. No risk premium, no duration premium, no cost of funds premium,,, Zilch!

There is a possibility default rates will be lower, There is also the possibility they will be higher.

Even on the best rating ,the net return after taxes, defaults and Linked slice is well under 3%....to cover risk premium, duration premium and cost of funds premium. Default rates which Linked put at 1.5% are unlikely to be lower but,if they follow recent linked statistics, will be much higher!
Of 363 Loans up to end 2015 , 12 were non performing (3.3%) .

spudwould

sceach16 wrote: »

A few general comments.

Lending on a site like this is high risk. It is unsecured lending based on limited financial data to individuals or companies who are unable/unwilling to borrow from conventional lenders. Linked do not give any guarantee and do not carry any risk on the loans. I am not surprised

The Linked proposed rating system allows for likely default rates of 8% per annum. To be blunt, this is crazy. A loss of 8% (not allowable against taxes) means a return of 16% before tax etc (@50%) is needed AFTER linked claim 1.2% .Based on on this, a minimum rate of 17.2% would still give a net nil return. No risk premium, no duration premium, no cost of funds premium,,, Zilch!

There is a possibility default rates will be lower, There is also the possibility they will be higher.

Even on the best rating ,the net return after taxes, defaults and Linked slice is well under 3%....to cover risk premium, duration premium and cost of funds premium. Default rates which Linked put at 1.5% are unlikely to be lower but,if they follow recent linked statistics, will be much higher!
Of 363 Loans up to end 2015 , 12 were non performing (3.3%) .

I asked LF about my loan that has not preformed for 13 months and when does it become a bad debt?

Reply:
Our next quarterly arrears blog will identify this as a bad debt with possibly one other loan.

spudwould

sceach16 wrote: »

A few general comments.

Lending on a site like this is high risk. It is unsecured lending based on limited financial data to individuals or companies who are unable/unwilling to borrow from conventional lenders. Linked do not give any guarantee and do not carry any risk on the loans. I am not surprised

The Linked proposed rating system allows for likely default rates of 8% per annum. To be blunt, this is crazy. A loss of 8% (not allowable against taxes) means a return of 16% before tax etc (@50%) is needed AFTER linked claim 1.2% .Based on on this, a minimum rate of 17.2% would still give a net nil return. No risk premium, no duration premium, no cost of funds premium,,, Zilch!

There is a possibility default rates will be lower, There is also the possibility they will be higher.

Even on the best rating ,the net return after taxes, defaults and Linked slice is well under 3%....to cover risk premium, duration premium and cost of funds premium. Default rates which Linked put at 1.5% are unlikely to be lower but,if they follow recent linked statistics, will be much higher!
Of 363 Loans up to end 2015 , 12 were non performing (3.3%) .

I would like to ask if ask other lenders if you think a return rate of under 3% is a good return?

I was quite happy with the auction and the bidding process but now that it has changed ... I can not see myself investing in(and this is the KEY point) UNSECURED loans at the fixed rates.

Squall Leonhart

spudwould wrote: »

I would like to ask if ask other lenders if you think a return rate of under 3% is a good return?

I was quite happy with the auction and the bidding process but now that it has changed ... I can not see myself investing in(and this is the KEY point) UNSECURED loans at the fixed rates.

No, I don't see this as a particularly good return considering it is unsecured and risk based investing for low yields.

Maybe it's time to relook at Mintos. I simply do not like the interface of the Mintos website though. I know that may sound a little odd a reason, but it kinda puts me off. The LF interface is clean and simple and something they've really got right.

Does anybody else have any suggestions of where else to invest in P2P, or am I just as well go the stock exchange route at this stage?

Katawalah

Thank you all for your calculations and contributions, it really helps me (re)considering lending on LF or not.

I also think that LF is not worth the risk anymore, based on the calculations made above.

This part of the LF email made gave me a sour laughter :

"We understand, however, that there are a small number of loyal and active lenders who like using the auction model in order to maximise returns. These lenders may not welcome this news, as they might feel that their overall return could drop as a result.

We believe, however, that it is better for those lenders who are making well above average returns to take a modest reduction now, in order to secure the long-term benefits of having a vibrant and sustainable marketplace where they can continue to make and compound attractive returns for many years to come."

I don't think it's fair for them to redesign their business model at the lenders expense. I only see the risk is increasing for the lenders (not for LF), but the interest rates and the returns are going down.

3% return for unsecured loans is a joke.

Spudwould wrote:

You have to remember that Linked Finance have NOTHING to loose.
LF charge between 2.5% and 5% of the total loan which is deducted BEFORE the loan is released ... meaning that LF are already paid IN FULL and it is only me and you the lenders that take the risk.
Of course they loose out on the 1.2% that they charge us!

Katawalah

Squall Leonhart wrote: »

No, I don't see this as a particularly good return considering it is unsecured and risk based investing for low yields.

Maybe it's time to relook at Mintos. I simply do not like the interface of the Mintos website though. I know that may sound a little odd a reason, but it kinda puts me off. The LF interface is clean and simple and something they've really got right.

Does anybody else have any suggestions of where else to invest in P2P, or am I just as well go the stock exchange route at this stage?

I started lending on Mintos and Twino 4 months ago. So far the returns are good enough. There is another dedicated post for Mintos on this forum. Feel free to come and ask us :-)

I also started 4 month ago to lend on Grid Finance, but I wouldn't recommend it. The returns can be higher than LF, they are like LF in its early stage. But there are few loans available, and few lenders as well. So you can bid and get high returns, but the loans take a long time to close. Surprisingly, they don't provide financial details (balance sheet, etc.), and you can edit your bid when you get overbid, so the rates are not dropping like on LF.

Otherwise, I am also looking for another P2P to diversify my investments. Does anybody has personal experience with other platforms?

sceach16

Squall Leonhart wrote: »

No, I don't see this as a particularly good return considering it is unsecured and risk based investing for low yields.

Maybe it's time to relook at Mintos. I simply do not like the interface of the Mintos website though. I know that may sound a little odd a reason, but it kinda puts me off. The LF interface is clean and simple and something they've really got right.

Does anybody else have any suggestions of where else to invest in P2P, or am I just as well go the stock exchange route at this stage?

Sorry, I don't have any. I have resisted the temptation to go to Mintos which is the only other such site I would consider. I am parochial and to date have done well on Linked. At present,I am only re investing but am unlikely to continue doing so at the new rates.

sceach16

Johns Meats bids returned 7 days after auction closed.....supposed to be done within 5 days per linked website. Its amazing that Linked tell us that fixed loans will resolve this delay(by linked)in repaying!!!

cruhoortwunk

sceach16 wrote: »

Johns Meats bids returned 7 days after auction closed.....supposed to be done within 5 days per linked website. Its amazing that Linked tell us that fixed loans will resolve this delay(by linked)in repaying!!!

Yep, second time in a few days that my bid was refunded with this reason:
'They feel the blended interest rate is too high'
It seems the only ones you get a decent rate from are now rejecting it as too high for them.
I think I'll use one of my annual withdrawals and withdraw what I have left. No more new bids for me

Squall Leonhart

cruhoortwunk wrote: »

I think I'll use one of my annual withdrawals and withdraw what I have left. No more new bids for me

Happened me with a loan the other day with Jacobs Service Station, and I was set to get a decent interest rate too. "Blended interest rate too high..." :mad:

cruhoortwunk

Squall Leonhart wrote: »

Happened me with a loan the other day with Jacobs Service Station, and I was set to get a decent interest rate too. "Blended interest rate too high..." :mad:

Yep, that was the other one. It seems the avg rate is now down to about 9-10% for a lot of the loans. I'm out

m320325

sceach16 wrote: »

O'Callaghans 2 Year Loan
"if you are a company, you must be registered with Companies Registration Office (the "CRO"), you must have filed accounts at the CRO for at least the two consecutive years immediately preceding your application to be a Borrower and at least 50% of your directors must be permanent residents of Ireland;"

this is from Linked website!!!! this company is less than 12 months old!

the rate on this loan is now under 9% even though they haven't answered questions about the balance sheet. I presume the many lenders assume the balance sheet is that of the limited company, and then other lenders bid without reading the financials or lender questions, but we've no idea how much of the assets were transferred to the Ltd company, its a bit misleading.

I expect this will get worse with the fixed rate loans, especially the higher rate, high risk loans, as given enough time a company should eventually reach 100% without answering any questions.

scheister

Just looking at the O'Callaghan's Loan. I did not think a sole trader could have a balance sheets. Would its not be every thing to owns personally that would appear on it so. Seems a very messy loan and LF answer to the questions are not helping themselves either

Strettie11

Fully expect many of the loans currently on site not to accept loans and to reappear under the fixed loans in a couple of weeks

Squall Leonhart

Strettie11 wrote:

Fully expect many of the loans currently on site not to accept loans and to reappear under the fixed loans in a couple of weeks

Of course, why pay more than you have to as a borrower. Frustrating for lenders though. Only 6mths on LF and it has already descended into farce.

sceach16

Strettie11 wrote: »

Fully expect many of the loans currently on site not to accept loans and to reappear under the fixed loans in a couple of weeks

I hope that their financial information second time around doesn't contain any surprises ! :rolleyes:

Strettie11

:D:D:D:D

There is some fun to be had looking at previous submissions

Just as a thought has anyone any interest in us going back as a group to Niall Dorrian ??

Squall Leonhart

Strettie11 wrote: »

Just as a thought has anyone any interest in us going back as a group to Niall Dorrian ??

You compose an e-mail or open letter or something and I'll put my LF signature to it!

at9qu5vp0wcix7

Are the balance sheets just made up? How can the numbers for identical years at identical businesses vary so much? They are asking us to invest in unsecured loans with no reliable balance sheets, even LF must realise that this is now unattractive to anybody with any sense.

sceach16

Strettie11 wrote: »

:D:D:D:D

There is some fun to be had looking at previous submissions

Just as a thought has anyone any interest in us going back as a group to Niall Dorrian ??

Squall Leonhart wrote: »

You compose an e-mail or open letter or something and I'll put my LF signature to it!

Me Too!

sceach16

Take a look at the Q/A.

spudwould

Mila Calm Ax wrote: »

Are the balance sheets just made up? How can the numbers for identical years at identical businesses vary so much? They are asking us to invest in unsecured loans with no reliable balance sheets, even LF must realize that this is now unattractive to anybody with any sense.

Linked Finance don't actually care about you or me once they get their loans filled ... the lower the interest rate the better for them as it will seem a very attractive platform to borrow from and the more loans the better for LF.
Remember Linked Finance charge the company "A completion fee of between 2.5% and 5% and lenders 1.2% of the total loan amount"

So linked are guaranteed 3.7% to 6.2% of the TOTAL loan! If the interest rate goes down to 0.01% .. linked finance get the same return as they would if a loan was filled at 15%.

So this is why LF are "Offering" the Fixed Rate loans and DRIVING DOWN the interest you can make .... because it makes THEM more attractive to borrowers!

LF seem to be doing well as they are inundated with lenders at the minute ...
I seen this 2 1/2 years ago and the rates were driven right down .. but then they seemed to go away again .. he beauty of defaults

I seen the replies that they gave screach about the sole trader turning Ltd .. and sure it was like talking to the wall ...!

I will be taking my few bob and legging it!

at9qu5vp0wcix7

Do you think the lower interest rates are anything to do with the interest rates on state savings schemes being slashed?

tomwaits48

the more I think about it, it makes very little sense to continue to invest in Linked Finance when other P2P sites offer buyback garauntees.

sceach16

Mila Calm Ax wrote: »

Do you think the lower interest rates are anything to do with the interest rates on state savings schemes being slashed?

Thats part of it. Part is that bank lending rates are coming down and, importantly, banks are lending to more businesses. So Linked are under pressure from borrowers.

My big concern is that the quality of the borrowers will reduce and we will be left with the dross. Linked told me they reject more borrowers than they accept. I do not like some of the loans. In particular, I am increasingly concerned at loans to newly incorporated companies.....without track record and verified financial data. I suspect these are unattractive to Banks.

Like any business, Linked wants volume and at present they need volumes of borrowers! Their proposed rates are skewed toward attracting borrowers
( says he as a lender!).

tadcan

Guess its time to migrate to another P2P service and stop putting in bids when it goes to a fixed rate. I liked LF because it was a low workload, high reward. Since they only allow four withdrawals per year, I have some time to consider my options.

Strettie11

It is actually interesting to go back and see what LF would earn on the model I created for the grade E & Y loans. Below is our return

My average gross return after LF fee is 10.30%.
My average return after defaults is 5.33%
My average net return after tax is only 0.29%

LF charges between 2.5% and 5% of the loan amount so if I take 3.75% as an average
Over 3 years my €5000 will start €12000 in loans ( reinvestment from repayments and interest earned)
€12,000* 3.75% = 450
add on fees from interest on loans (1.2%) 149
Total earned 599

That gives LF average return of 3.84% a year with no default risk, yes they do have expenses but the vast majority of their income comes from creating a loan not the continued payment of that loan.
Also LF earns €99 a loan in setup fees not included in above analysis