Author Topic: Feeling Irritable!  (Read 13676 times)

Show Me The $

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Feeling Irritable!
« on: May 17, 2013, 04:22:50 AM »
We all want to pick loans that will pay off and make us some money, right? Well there is one critical factor I have misjudged....When these bozos payoff early! The worst part about this happening is, you are paying 1%on the ENTIRE amount of principal returned.

After making a $25 loan, I got one payment this payment was $.30 interest and $25.30 principal. I had to pay $.25 to LC leaving $.05 as profit. I have had this happen not so infrequently. Don't you think that LC shouldn't be charging on ENTIRE principal amount on early payoff? They take a service fee for regular servicing of the loan. They are basically accelerating this fee on early payoff. Agreed they did not get paid on the alrger P&I payments over time. But this just annoys me.




rawraw

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Re: Feeling Irritable!
« Reply #1 on: May 17, 2013, 04:29:10 AM »
Yep, reinvestment risk (or bonds being called) sucks.  LC is no different

mitgib

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Re: Feeling Irritable!
« Reply #2 on: May 17, 2013, 07:50:14 AM »
I imagine this time of year when tax refunds arrive a higher number of early payoffs are likely.  The LC fee is no more than normal, they take 1% of all money they collect, but when it is all principal it sure hurts.

brycemason

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Re: Feeling Irritable!
« Reply #3 on: May 17, 2013, 08:56:23 AM »
Cost of doing business. Like Don Henley says, "Get over it!" Just buy a new loan and be happy the principal is back. I think there has been only 1 loan in 1000 so far that Paid in Full but lost me money (1 cent).

Show Me The $

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Re: Feeling Irritable!
« Reply #4 on: May 17, 2013, 09:28:31 AM »
Yeah, most of my prepaids have balances of $.01.

Its all good.

New Jersey Guy

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Re: Feeling Irritable!
« Reply #5 on: May 17, 2013, 10:28:00 AM »
"After making a $25 loan, I got one payment this payment was $.30 interest and $25.30 principal."

I'll take that loss ANY DAY vs. a One-and-Out and LOSE all the principle!
Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

investforfreedom

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Re: Feeling Irritable!
« Reply #6 on: May 17, 2013, 11:21:24 AM »
Any statistical profiles of borrowers who are likely to pay off early?  My LC account is relatively young, so I hesitate to make statistical generalizations, but for my Prosper account, I have more than 14% of notes paid off early.  And these are mostly borrowers with high income.  My return at LC could take quite a hit if I had a similar percentage of borrowers paying off early. 

Fred

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Re: Feeling Irritable!
« Reply #7 on: May 17, 2013, 02:04:36 PM »
We can ask LC to institute a prepayment penalty (e.g., 3% fee if loan paid fully within 1-yr), but that probably would reduce borrower demand.

mitgib

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Re: Feeling Irritable!
« Reply #8 on: May 17, 2013, 02:40:17 PM »
We can ask LC to institute a prepayment penalty (e.g., 3% fee if loan paid fully within 1-yr), but that probably would reduce borrower demand.

I wouldn't ask for this, but I would ask LC to waive/reduce their fee on early payoff of any amount over a regular payment

GS

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Re: Feeling Irritable!
« Reply #9 on: May 17, 2013, 03:10:02 PM »
It is possible to lose principal on early payments.  Worst case, an A1 $25 loan pays $0.13 interest the first month.  So, with a $0.25 fee, you lose $0.12, which works out to a roughly -5.5% APR ...

This is one area where LC could use a rule change, to reduce the fees on early payoffs.  I think, at a minimum, LC should make the fees no greater than the interest paid, so investors are at least guaranteed to break even on one-month payoffs.


New Jersey Guy

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Re: Feeling Irritable!
« Reply #10 on: May 17, 2013, 03:37:45 PM »
"....an A1 $25 loan pays $0.13 interest the first month."

Most of agree that A1's aren't worth investing in to begin with.  Your's is just another reason to stay clear of them.

Return over deposits:   66.82%
IRR:   86.54%
As of April 30, 2014

Zach

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Re: Feeling Irritable!
« Reply #11 on: May 17, 2013, 03:39:52 PM »
For what it's worth, this occurrence is rare and has a negligible impact on your overall returns. I would use this analogy; if I offered to give you $100 and then said I need 0.05 back...it would still be a very good deal for you. Nonetheless, it would be nice if LC implemented a modified fee structure for these occurrences - don't hold your breath though.

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LonghornSF

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Re: Feeling Irritable!
« Reply #12 on: May 17, 2013, 06:37:33 PM »
"....an A1 $25 loan pays $0.13 interest the first month."

Most of agree that A1's aren't worth investing in to begin with.  Your's is just another reason to stay clear of them.

A lot of institutions invest in A1s as cash equivalents. Agreed that many (most?) individual investors wouldn't touch those loans, but I think the principal of the matter is important. As LC's volume increases, they should share some of the scale benefits with investors in the form of lower fees.

rawraw

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Re: Feeling Irritable!
« Reply #13 on: May 17, 2013, 07:35:06 PM »
"....an A1 $25 loan pays $0.13 interest the first month."

Most of agree that A1's aren't worth investing in to begin with.  Your's is just another reason to stay clear of them.
Risk of prepayment of an A1 loan should be very low compared to others.  Hard to refinance below that rate.

JDowding

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Re: Feeling Irritable!
« Reply #14 on: May 19, 2013, 10:33:38 AM »
It is possible to lose principal on early payments.  Worst case, an A1 $25 loan pays $0.13 interest the first month.  So, with a $0.25 fee, you lose $0.12, which works out to a roughly -5.5% APR ...

This is one area where LC could use a rule change, to reduce the fees on early payoffs.  I think, at a minimum, LC should make the fees no greater than the interest paid, so investors are at least guaranteed to break even on one-month payoffs.

There's another risk of prepayment, it puts your money back into cash lag, potentially another couple of weeks where it's not working for you.

Still, on the whole happy for borrowers who manage to prepay.  Hopefully they are making good financial decisions and getting out of the hole they dug for themselves.