Author Topic: Are payment plans good or bad?  (Read 6733 times)

hoggy1

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Are payment plans good or bad?
« on: August 28, 2014, 08:13:24 AM »
Not sure I understand the timing of events on this note?

https://www.lendingclub.com/account/loanPerf.action?loan_id=16463233&order_id=23522644&note_id=47716570

An automatic payment failed on the 26th. There is no record of contact having been established with the borrower or the borrower ageeing to pay. But a new payment is scheduled for the 29th. So the question is are payment plans something the borrower has agreed to just or LCs next plan to collect? It also says current? If you miss a payment I thought that automatically put the loan IGP?
« Last Edit: August 28, 2014, 08:29:27 AM by hoggy1 »
Steve

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Re: Are payment plans good or bad?
« Reply #1 on: August 28, 2014, 10:31:26 AM »
My understanding is that payment plan is actually OK, borrower is making a conscious effort to negotiate in good faith and commit to a different but a defined cash flow schedule.

yojoakak

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Re: Are payment plans good or bad?
« Reply #2 on: August 28, 2014, 11:23:14 AM »
Payment Plan could be one of these things:

A) reduced payments = trouble

or

B) accelerated payments = less interest for you

or

C) For some older loans, LC used a Payment Plan to reschedule the payment date every month but now they don't do it that way. Also not ideal, since most likely it means the borrower is riding the ragged edge of disaster.


In my opinion, any change in the payment schedule is bad.


« Last Edit: August 28, 2014, 11:27:45 AM by yojoakak »

Fred

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Re: Are payment plans good or bad?
« Reply #3 on: August 28, 2014, 12:12:32 PM »
The main purpose of payment plan is "to bring loans back to current status over a longer period of time."

http://kb.lendingclub.com/investor/articles/Investor/What-is-a-payment-plan-and-how-do-I-track-it/

It is essentially an automatic refinancing with the same interest rate at a longer term. 

Not the best outcome for lenders, but much better than defaults.

Fred93

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Re: Are payment plans good or bad?
« Reply #4 on: August 28, 2014, 02:40:40 PM »
A payment plan is a compromise

It is bad in the sense that you are getting less than promised, and bad because the arrangement has a high probability of failure.  It is good because it is more than nothing, ie without it the borrower might have just stopped paying already.

SeanMCA

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Re: Are payment plans good or bad?
« Reply #5 on: August 28, 2014, 02:51:09 PM »
I think they are too lenient with payment plans. I am seeing notes enter into a payment plan after the very first payment or non-payment. On the part of the borrower, it looks and smells like premeditated fraud.

Borrower agrees to 5 year loan, immediately says they can't afford it, Lending Club cuts payments in half and revises to 10 year loan.

It is nice they are still paying me but all it takes is for word to spread that Lending Club will renegotiate the terms of your loan immediately after issuing it if you plead hardship and the trend will spread like the plague. Lending Club doesn't care because it's not their money and they look like heroes for getting you something instead of nothing.
« Last Edit: August 28, 2014, 02:56:46 PM by SeanMCA »
I'm a merchant cash advance veteran exploring the p2p lending waters.

brother7

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Re: Are payment plans good or bad?
« Reply #6 on: August 28, 2014, 03:00:03 PM »
Borrower agrees to 5 year loan, immediately says they can't afford it, Lending Club cuts payments in half and revises to 10 year loan.
I don't believe this is the case, is it? I've never heard of a 10-year LC loan.

yojoakak

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Re: Are payment plans good or bad?
« Reply #7 on: August 28, 2014, 03:01:33 PM »
Borrower agrees to 5 year loan, immediately says they can't afford it, Lending Club cuts payments in half and revises to 10 year loan.
I don't believe this is the case, is it? I've never heard of a 10-year LC loan.

Of course not. After 5 years LendingClub doesn't have to you pay you anything.

See also: http://www.lendacademy.com/forum/index.php?topic=530.0
« Last Edit: August 28, 2014, 03:04:27 PM by yojoakak »

Fred93

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Re: Are payment plans good or bad?
« Reply #8 on: August 28, 2014, 03:16:29 PM »
Borrower agrees to 5 year loan, immediately says they can't afford it, Lending Club cuts payments in half and revises to 10 year loan.
I don't believe this is the case, is it? I've never heard of a 10-year LC loan.

LC doesn't talk about the parameters of payments plans, so you've never heard them say such things.  However, when I have a 5 year note, and LC agrees to a payment plan at half the payment or less, what would you call it?

Fred

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Re: Are payment plans good or bad?
« Reply #9 on: August 28, 2014, 03:44:14 PM »
From page 89 of LC earlier 10-K:
http://www.sec.gov/Archives/edgar/data/1409970/000119312513136975/d450565d10k.htm

Quote
As part of our activities to maximize receipt, collection and recovery of loans in which the borrower has, or is expected to, experience difficulty in meeting the loan’s contractually required payments, we may agree to special payment plans with certain borrowers. Most of the special payment plans involve reduced minimum loan payments for a short period of time and the deferred payments are to be repaid over the remaining original term of the loan. No principal or interest is forgiven nor is the original term of the loan extended in these situations. The delay in receipt of all contractually-required loan payments in these situations is insignificant.

SeanMCA

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Re: Are payment plans good or bad?
« Reply #10 on: August 28, 2014, 08:11:30 PM »
From page 89 of LC earlier 10-K:
http://www.sec.gov/Archives/edgar/data/1409970/000119312513136975/d450565d10k.htm

Quote
As part of our activities to maximize receipt, collection and recovery of loans in which the borrower has, or is expected to, experience difficulty in meeting the loan’s contractually required payments, we may agree to special payment plans with certain borrowers. Most of the special payment plans involve reduced minimum loan payments for a short period of time and the deferred payments are to be repaid over the remaining original term of the loan. No principal or interest is forgiven nor is the original term of the loan extended in these situations. The delay in receipt of all contractually-required loan payments in these situations is insignificant.

So this is a good find and clears a lot up. I think they should be required to disclose the details of the payment plans they devise since they are renegotiating the terms that we accepted. I get that it's within their powers to adjust the terms, just tell us what they are if for no other reason than to keep them honest.

All I see is the first payment missed, payment plan set up to make partial payments going forward.
I'm a merchant cash advance veteran exploring the p2p lending waters.

thezinfan

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Re: Are payment plans good or bad?
« Reply #11 on: August 29, 2014, 11:27:44 AM »
Sean,

If you look at the details of the payment plan, they should point to a lender getting back on schedule to meet the original terms. Are you saying the payment plan you are looking at doesn't bring the loan back to current if the payments were made?

If the loan is "on Payment Plan" the details of the plan should be available.

Larry