It’s been just over twelve months since I started my Peer2Peer (P2P) lending experiment with New Zealand-based company, Harmoney, so I thought it would be a good opportunity to do a review of my experience and determine whether my expectations are being met.
I last gave you a progress report back in July when I was deciding whether or not I was going continue with Harmoney as they had changed their fee structure significantly and it appeared as though my user costs may triple. You can read more about that here, but in short, the previous structure meant that you paid 1.25% on interest and principal received. The new fees meant that I would be paying 15% on interest only. This calculated out to be a three-fold increase at first appearance.
The other factors that were weighing on my decision were that all loans are unsecured, and that you can only claw back your funds once a lender has repaid the principal which could be up to 5 years if they chose to go the full term.
In the end, I decided to leave my current investment as-is and keep an eye on whether a combination of defaulted loans (yes, some lenders don’t pay you back your money) and increased fees meant that I would be better off investing elsewhere.
Well, I’m please to say that my Realised Annual Return (RAR) rate doesn’t appear to have diminished at all and that it has remained steady above the 15% mark. This is well above the rate of my fellow lenders with an average return of 13.54% and far better than the average return received by Harmoney’s institutional lenders at 12.11%.
Here’s a current summary of my account.
As you can see, the arrears are currently $107 and this amount doesn’t seem to change much. Most of the arrears are less than 30 days which, apparently, is quite normal as borrowers get their payment schedules sorted and many need a regular nudge from Harmoney to remember to make their monthly payments.
Defaults are tracking at 1.24% of loans or 1.1% of principal which, of course, is higher than I would like (basically these are borrowers who have decided, for what ever reason, not to repay their loan) but these figures are still within the expected average range. Not ideal but in the bigger picture, not a show-stopper.
I use to fund mostly the higher interest rate loans, namely C, D, E and F, but these are typically where most of the defaults have come from. No surprises there.
Now that Harmoney have introduced automated investing on their site, I am able to set up investment criteria filters and the platform will reinvest funds more in keeping with my risk profile. So now I’m a bit more fussy about who gets my money. With my filter set to A, B and C only with certain loans such as holidays, loans to family members, and other reasons that I don’t think are good investments excluded, I hope to see a drop in defaults while my returns remain steady.
I’m sticking with Harmoney for the longer term but won’t be investing any more funds into this platform for the near future. For the same reasons that I explained in my July article, there are just too many what-ifs with this style of investing to be completely comfortable for me.
What will happen when we hit the next economic downturn? Will I suddenly see the defaults skyrocket as budgets become tighter?
What if I wanted the funds for some other purpose? Until the borrower repays the loan, your money is effectively locked away throughout the loan term.
I still see P2P lending as a valid form of investment and the various platforms are always improving their services to make it easier for their customers to use. I used to have to log on several times a day to reinvest funds before the auto-invest feature came along. That’s a huge improvement which means there’s less chance of missing the type of notes I want to lend on, and I only need to check every few days that things are ticking along as they should be.
I will continue to reinvest all principal and interest received, back into other loans. If my 15-plus percent return is maintained long term, this will become a very lucrative source of income in a few years time.
Have you had any experience with Peer2Peer lending? If not, is it something you may consider? And if you have, has it met your expectations as a lender?