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We've been going since 2006 - completely free speakers, tackling consumer issues, current affairs and other issues and injustices that arise. Based in Australia and New Zealand we enjoy the privaledge of free speech without the threat of the Chinese Communist Party's Green Dam, Iranian Government, the USA's "Homeland Security" thought police, CIA (so much for "Land of the Free!"), and almost all the other fruitloops in the world who can't handle some constructive criticism.

P2P Lending (7) Is it right morally?

Posted By on December 26, 2016

“Sure they might be ethical but are they right morally. Is it right to charge 20% interest when the banks are charging only 3%?”

That’s what a sceptical friend posed to me, at a meeting one day. I have to admit I had a slight niggling feeling about the morals of it all but when we are making money, it’s amazing how we can rationalise away out morals. I came back with the usual responses like, “Well no-one is forcing you to borrow it. You don’t say that about the tax man when he takes a whopping 33% and shells it out to politicians.”

Then another member of the group spoke up and what he said changed the whole perspective for all of us:

“My wife and I have been paying off our home loan for 6 years now. It has a redraw facility that allows us to top up the loan and draw out some of the money we’ve repaid. We decided to get a better car and looked at using some of that equity to purchase it. We needed about ten thousand dollars. At first it seemed like a good idea to use the equity in the home loan. After all, variable rates are so low now and it’s only 6% p.a.. The alternative was to get finance for a car loan at 19%.”

The whole group agreed. It made sense to make use of a lower interest rate. But the next sentence stopped us in our tracks.

“Yes! You see you’re sucked in, just like everyone else. Fooled by the magic of compounding interest. I nearly was too!”

We all looked at each other trying to see what we had missed. No way could a loan at 19% be better than a loan at 6% right?

He explained, “You see, while you see the interest rate, you are forgetting the term. The home loan will take that $10,000 at only 6% but for 19 years!  Sure the finance loan is a lot higher interest rate, at 19% but the term is only 4 years”.

We still could believe it was cheaper, so I pulled out my smart phone and set up the compounding interest formula. If he borrowed $10,000 at 6% compounding over 19 years, he would repay $31,178.99.

Then I did the calculation for the same amount at 19% for 4 years and discovered he pays only $21,255.83.  In other words by taking the high interest loan, he’d save a whopping $9,923.16.

The difference is the time the compounding takes or the term of the loan. Morally there is nothing wrong with lending at high interest rates provided they are only for short periods. The added advantage with P2P loans is they don’t charge whopping penalties for early repayment either, like the finance companies and banks do.

So Long Teflon John – Leaving before the storm?

Posted By on December 5, 2016

I just heard the Prime Minister of NZ, John Key, has resigned, citing family matters. Sorry, but when it comes to politicians, if their mouth is moving, they are lying and this is no exception. In politics, you always try to leave on a high, it guarantees a good price for endorsements and speaking engagements later.

Has John Key has done exactly that, especially considering what’s waiting around the corner?
Here’s what’s looming in 2017:

Kaikoura Earthquake
The coffers are empty after the Christchurch earthquake and insurers are screaming because the repairs done by the EQC were substandard and mainly cosmetic. Now property owners are looking at foundation problems and further insurance claims, especially if we have a hot dry summer causing ground shrinkage. There are still claims being argued from 6 years ago.

The insurers will be far tighter when it comes to claims this time. Teflon John has made a big splash with a fast handout, then jumped ship before the proverbial stuff hits the fan. They have to decide whether to quickly rebuild State Highway 1 or develop an alternative route. The alternative route through the middle of the South Island will cut off a lot of tourist sites. Repairing the existing road (what’s left of it) will cost probably more. It’s not as simple as removing rubble to clear the road and leveling it up, it hugs the shoreline beneath towering cliffs that are now unstable and will have to be secured or at least battered back to a safer angle. Then there’s the issue of where to dump the rubble removed.

There’s also the issue of Kaikoura itself. Extensive repairs are required to the township. The anchorage there is now above water in some places. Considering Kaikoura is billed as one of the worlds top places to view whales and seals, the anchorage plays a vital role not only in Kaikoura’s economy but also a slice of New Zealands tourist economy.

Housing
If Teflon John’s reign will be remembered for anything, it will probably be the sky rocketing house prices, in particularly Auckland and Wellington but also throughout the country. A decidedly average 3 bedroom home in Auckland is now around the $1,000,000.00 mark. To buy a home now means:

  • a huge mortgage or three,
  • having wealthy family back in China or India to fund you,
  • or using your string of substandard rental homes as collateral.
  • or all of the above.

The market has been rising so fast that property investors have been buying homes and leaving them empty, rather than letting them. The appreciation in price, outweighs the hassle of tenants. Rather than limit overseas investors, Teflon John’s lot pretended they didn’t exist by ignoring all the properties purchased by young students on study visas and temporary visas. (Of course they’re not really overseas investors – everybody knows that a Uni student on part time work can afford a 20% house deposit).

During Teflon John’s reign not only did we increase the homeless population in our capital cities, we created a whole new class of homeless; the sort of wealthy homeless who could afford a car to sleep in! In the Homeless section of the community, we now have two classes: Vagrants and Vangrants!

Employment

We are seeing a reduction in full time jobs both from technology and outsourcing jobs to countries where wages are lower. There is an increase in personal contract employment (a.k.a. temporary employment where the employee pays all taxes, super etc. out of a reduced weekly wage). A similar trend in Australia has created a new underclass,; the “Underemployed”. Add to this a low basic wage when factored against basic survival costs. This trend is contributing to a rise in personal debt, especially in the case of older workers in the over 40s category.

Personal Debt

Haven’t the papers been strangely silent on this one?

Not surprising considering New Zealand’s papers are usually loathe to criticize the incumbent government too much. But Teflon John’s resignation should flash “DANGER!” to anyone in finance. We have the conditions for a perfect storm looming and Teflon John has headed for the hills.

Firstly we have a population carrying a massive amount of personal debt. There are the huge home loans, the high cost of living for basics like petrol and food items on shelves at export prices. Add to this low wages being further eroded by the increase in private contracts, replacing full time employment. Here, we have very high accommodation costs (either large mortgages or high rents), coupled to a high cost basic necessities, further boosted by another 15% for GST, one of the world’s highest.

This means people are drawn towards borrowing rather than saving and as a population, carry an inordinate amount of personal debt. Payday loans, personal loans, car finance, shoppers cards and back cards are commonplace. For finance companies, one of the most common loan types is a debt consolidation loan – essentially where people take out a loan to pay loans with!

Economy

This is where it all comes to a focal point:

  1. The failure of the TPP will mean less exports for New Zealand. While it doesn’t actually close our markets, it doesn’t give us any preferential treatment or exemption to import duties, tariffs etc. We have higher transport costs than our competitors, competing for access to those markets. To export, we have to sell for less to allow for the higher transport costs.

  2. The housing market bubble will burst and prices will either drop or sales will slow to the point where sellers will have to take less or wait for ages to sell their properties. As property appreciation slips, investors will want to pull out of the market. Many of these “spec homes” are in a poor state of repair either as a result of being untenanted or let and poorly maintained. Overseas owners will not want to spend to get them repaired and will dump them on the market, further slowing the market.

  3. The banks will increase their lending margins, citing increased costs for overseas credit (because the dollar will drop) and “the cost of doing business” (a higher default rate for loans). This will raise interest rates across the board. With high mortgages, lots of personal debt (car loans, credit cards, personal loans, overdraft etc) and low income, this will boost the credit default rates further.

  4. Add to all this the costs from the Kaikoura Earthquake and a reduction in employment from a slowing economy (with less tax revenue and higher welfare costs).

When you add it up, 2017 is not shaping up to look like a great year. No wonder Teflon John threw in the towel!

Oh… and by the way…

Posted By on December 5, 2016

To all the US readers with their “kind thoughts” (sic) and threats – GFY!

You got Trump anyway, (nya nya!) so shut up, honour your own democratic process and give the guy a chance.

Just look at all the promises Obama and all the others made in their election campaigns. How many have actually happened?

It’s easy to play the idealist card, making promises you genuinely intend to keep. However, when you are sitting in the hot seat and get to read the whole file (not the redacted public version) there’s other factors in there you never knew about. Those idealist promises have to be modified.

At least this time we won’t have someone modifying them to put more money in old pockets.

P2P Lending (6) Free extra investments

Posted By on December 5, 2016

Einstein said “Compound interest is the eighth wonder of the world. He who understands it, earns it … he who doesn’t … pays it.”

I always thought I had a good handle on compound interest, so being a bit mathematically inclined, I decided to calculate how much one of my lowest interest P2P investments at 9.99% p.a. would make, on a 5 year loan. Using the compound interest formula, my $25.00 investment would return $41.11. That’s only $8.89 short of doubling my money!

Then I entered my “High Interest Savings Bank Account” interest at a whopping 3% into my equation and gagged when it said my $25.00 investment would return the princely sum of $29.04. Oh joy (not!) – Whoopee bloody Do! – don’t spend it all at once!

Across my whole portfolio my average interest rate is 21.15%. At that rate, over 5 years, I’d get $71.32 back for every $25.00 outlay over 5 years – only $3.68 short of tripling my money (this does not factor in any defaults, which to date are 1 out of 60 loans).

I industriously set up a spreadsheet that calculates the returns on every P2P loan investment, thinking at the end, I would be able to calculate how much I’d make from the entire portfolio. It turns out, that according to the formula, I’d invest $1,500 and get back $5,000 and a few extra dollars. I then computed tax on that and was so proud of myself, I had it all worked out.

Well, so I thought, until my daughter (who failed Maths by the way) pointed out that it didn’t take into account the repayments I receive that I reinvest, effectively creating free or un-funded investments, that I had never factored into my equations.

Unlike a bank who pays you back the lump sum from your investment at the end, in P2P lending, you get paid as the borrower pays back the loan. If you let these tiny payments (because you are only a small fraction of the total loan amount and therefore the repayments) accrue, they will add up to enough to buy another note – one you never factored for in your calculations.

As my daughter put it, “You’re sort of earning compound interest on your compound interest!”

Personally I believe, that unless the banks change their business model, P2P lending will see the death of the big banking system and frankly no great loss!

The US election – so what’s new?

Posted By on November 10, 2016

Thank goodness the USA election is over!

Aside from being the pick of the bunch when it comes to US schmultzy sitcoms (at least this one had a paid, live audience) it’s nice to get back to the banal gardening, cooking and renovation garbage of the usual channel chaff.

So what’s really new?

Well firstly, this whole fiasco has proven to the world that the USA is not democratic at all. We suspected as much but never had the proof until now. It really all comes down purely to money. Enough money can overcome charisma, diplomacy, experience, bigotry, education and even “old money”. For the first time it’s out there in the open, for all to see at last.
That’s new!

The “old money” set that runs the banks, the US military and the US government must be furiously shredding documents before he takes office because Donald Trump doesn’t belong to their set. Could this be the end to the blatant nepotism that has dogged the US political and financial scene for more than the last 100 years?
That would be new!

Just like G.W Bush, Trump has had enough failed businesses to qualify for presidency. There are two big differences though; he didn’t have “old money” ties to fend off bankruptcy proceedings and he actually learned by his mistakes to create a successful empire. So, we have a president who can learn by his mistakes.
That’s new!

He has created a fortune on his own, not taken a stash from Daddy, the relatives and their toadies and had all the right contacts to do it. He did it on his own.
That’s new too!

He’s fed up with people crossing the border from despotic countries wracked by corruption, organised crime and drug wars. That’s not new. But he’s had the guts to come out and publicly say so – very un-American.
That’s new!

Donald Trump is not an over educated economist, trying to conceal the simple obvious truth with financial rhetoric. He understands economics and the simple truth – when you send jobs off shore, you ultimately create people too poor to buy the stuff. You’ll end up either with high welfare costs or no tax money to create the infrastructure to support them (sort of like the USA has now). Rather than support huge corporations sending jobs and profits overseas, foster new enterprises and make it profitable to have production at home. That’s not what the “old money” set preached.
That’s new.

So maybe this wasn’t just more TV entertainment. Maybe something new has actually happened.

It would seem so; the world markets all took a dive – too bad!

Maybe it’s time we all woke up to the fact that our old methods don’t work. The USA is sinking into a pit of debt. It is counting loans to impoverished countries for aid, as an asset; loans that could never be paid because war ( funded by Haliburton and US “old money”), had reduced them to become even more impoverished.

The USA (like most other developed countries) has shipped its manufacturing to 3rd world countries and in the process created a mighty adversary in China, while reducing its own people to unemployment and homelessness. The USA and China are the two giant economies and if one sinks, the other will dominate. We need that status-quo between the two of them.

And what about Russia you ask?

Russia is a distraction. Yes, it has enough nuclear arms to wipe out the world but those arms require maintenance and Russia has to fund that. Its political system collapsed once and while it might dream of rising to a super power, it’s only hopes of doing so are to align with China or India, in which case it will lose its identity. That’s something Putin will never allow. It has issues with the rest of Europe and its time Europe stood on its own two feet and invested in its own united defense, rather than expect another continent to do it. The USA cannot afford to fight the world’s battles at the moment. It has ignored its own internal problems for too long.

Much of what Donald Trump says might sound offensive but maybe it’s time to do away with a lot of the political correctness, padding and propaganda and face the facts. It’s time the USA got its own house in order and it needs someone who isn’t a member of the Bilderberg group, “old money” or Haliburton to stop the rot. Could this be that right person?

P2P Lending (5) No Tax Ouch!

Posted By on November 4, 2016

One of the biggest killers of any investment is tax. Many investments can get you into trouble because you receive your returns with interest and spend it. Then comes tax time and there’s a nasty surprise when you do your tax return – a large debt to the tax man.

I had shares that were franked (meaning they paid some of the tax) and another investor friend often made wise cracks that his returns were far higher than mine, that was until tax time. He had shares in the booming minerals companies and while they paid well at that time, he neglected to factor in 30% capital gains tax. Because mine were franked I only had a small amount of tax to pay.

Something I forgot to mention, Harmoney withhold an amount you choose, for tax. Depending on your other earnings you might have some extra tax at the end of the year but whatever it is, it is usually less than you would have from franked shares. Compared to other investments you’ll get to keep more of the rewards. Just to be safe plan on losing a bit extra in tax at the end of the year if your earn enough to not be on the top tax rate. Either way, when you select the amount of tax to withhold, when you create your Harmoney account, choose the top rate (33% here in NZ).

Some P2P lenders do not withhold investor funds for tax. Ouch!

If this applies to your lender, you will need to deduct tax from your investment earnings. I’d look at what your usual tax rate and deduct tax from your investment at the next rate up. For example, if my top tax rate is 30% (30c in the dollar) then I should withhold tax at the nest level up (in NZ that’s 33%). By doing this, you won’t get any nasty shocks at tax time. Remember that’s tax only on earnings, not the amount you deposited to create those earnings.

P2P Lending (4) Maximise your returns

Posted By on October 12, 2016

So just to recap – I am not an investment consultant and will not receive any commission from this or any other reward. I just stumbled on a really nice investment and want to share my experiences in the hope it might help others, like it’s helped me. Although I have used P2P lending as my investment vehicle here, these strategies will apply to many forms of investment.

Be consistent – the biggest killer for any investment scheme is not being consistent. Set an achievable amount you can deposit into your investment each pay. Remember – the beauty of this investment is the small amounts you can deposit to build it up. It doesn’t require a lump sum, so make the most of it by depositing each pay day. People tend to focus on the amount rather than the frequency they deposit into their investment account. Down the track, if something comes up and you can’t make the full amount, you tend to think it’s not worth depositing a smaller amount – wrong!

One of the nicest things about P2P lending investment is you can deposit anything, it doesn’t have to be $25 or more. It goes into a bank account and when there is $25 or more, you can buy a note with it. If you can’t spare $25, depositing less this pay, is better than nothing. When you see it grow and get to say $22.00, you’ll be motivated to put an extra $3 in to afford to buy another note.

Make a rule at the very start, to deposit every pay, regardless of the amount, then select a manageable amount to deposit. Because my wages were up and down like a yoyo, I decided to put in only $25 a week.

Make a plan and stick to it – As your investment grows your attitude will change. Many people start taking more and more risks as they see the returns growing their investment. It’s the greed syndrome. What they forget is they are raising their risks of failure. Each loan has a credit risk from A1 being the lowest risk, to F5 being the highest risk of default. When you see an B3 rated loan at 15.16% and compare it to an F3 loan at 39.61%, it’s tempting to take the F3 loan but there is a significant difference in the chance of a default. Set out with a plan on day one and stick to it. My plan was to distribute my notes over all the categories evenly. This way I spread the risk of any defaults. Today I still use that same strategy.

A section of the lenders report page showing loans with ratings, interest and risk of default as a percentage

A section of the lenders report page showing loans with ratings, interest and risk of default as a percentage

 

If you feel this is a high risk investment strategy, then plan to have most of your notes in A and B loans.

Diversify – this is something Harmoney also stresses heavily but it applies to any investment.. Invest a single note in each loan rather than many notes in one loan. You will reduce the risk of losses from any defaults. Defaults are not common but they can happen so we have to factor them into our planning.

The way I look at it is: Murphy’s Law says that if only one person will default, the chances are it will be the one I have invested in. By investing in many people, The chances of all of them defaulting is much less than just one person. If I make 20% each on 5 notes and if the 6th one defaults, I haven’t lost any money (I haven’t gained either). The returns on the 5 will make up the loss on the 6th.

But it gets better – this only applies if the 6th person defaults on the very first payment. That’s rare. Most defaults occur down the track, when part of the loan is already paid off. In this case, you are not even losing the full value of your note, part of it will have been repaid already. In my portfolio, I would have to have every third note default before I would lose money. That’s highly unlikely.

P2P Lending as an Investment – (3) Starting off

Posted By on September 20, 2016

So just to recap – I am not an investment consultant and will not receive any commission from this or any other reward. I just stumbled on a really nice investment and want to share my experiences in the hope it might help others, like it’s helped me. In this example I have used Harmoney, a New Zealand based company. There will be an equivalent organisation in your country. So here’s how you can make money work for you and create an affordable investment.

The key factors to look for are:

  1. No lump sum minimum to start up.
  2. They have a credit worthiness assessment system for their borrowers.
  3. They have a collection process for loans in arrears to minimise defaults.
  4. They respond to your questions and not just divert you to a FAQ.
  5. Do they withhold funds for taxation?

Most high yielding investments require a large amount of money and a high level of risk. Bank interest is below inflation, so investment has become beyond the reach of the average person who wants to get ahead. P2P lending could be a solution. It does have risks but I believe when you compare it to other investments, you have more control over your risk. It requires no lump sum to start it off, returns very good interest and locks the money away so we can’t spend it until it’s grown. Unlike fixed term investments the funds trickle back into your account so you can accumulate them and re-invest them.

Research – do your research first. Check their web site and also search for complaints with them. If the P2P organization is called XYZ, then do a search for “complaints about XYZ” , “Is XYZ a scam”, “Problems for lenders with XYZ” and “Borrower problems with XYZ”. Often you’ll get some moaners who broke the rules, so read the results with an open mind.

If they appear good, open an account and deposit a small amount, say enough for one “note” only. This should be money you can afford to lose. The idea is to see how the system runs. How long does it take between depositing to actually owning a note? This is important because as P2P lending becomes more popular, there will be a scrum for buying notes, you need to know their processing time. Watch their site once a day for a week or more. They will usually have one day where they release a lot of loans – a day where you have far more choices.

Look at their borrowers. Who are their customers? Are they borrowing for home improvement, debt consolidation, holiday expenses or are they all eBay businesses that could fold tomorrow and vanish into thin air. Ideally you want an assortment, not all “Ebay Power Sellers looking for investment funds to grow their business”.

Are they trading in fiat currency or crypto-currency (e.g. Bitcoin). Crypto-currency means you can trade internationally but you’ll need extra security to secure your digital funds (e.g. a cold store digital wallet) and there will be an extra delay in lodging funds to purchase notes.

In the next installment, we’ll look at some ways to maximize your returns and reduce the risk

P2P Lending as an investment for beginners -2

Posted By on September 13, 2016

International P2P lending

I also looked at some International P2P finance organisations. The one that appealed most to me was Bitbond, run from Germany. It transacts in Bitcoin and doesn’t require a huge investment startup deposit, however the part I was wary of, was the Bitcoin itself. The value of Bitcoin is extremely volatile, especially lately with hackers stealing from exchanges. Also they favored European accounts, making it a bit messy for anyone starting up outside the European community. Lately, thinking about security (as opposed to being user friendly) they asked for video identification as an extra security measure. That sounded fine at first glance, until I discovered they wanted me to hold up my passport to my face, in the video. Imagine if their security was breached, what would that be worth to a false passport maker? I also discovered some complaints about losses resulting from a high number of defaults with Bitbond loans.

While they gave me assurances that their system was secure, the customer I.D. number didn’t work in their software either and as a programmer of over 30 years, if you can’t get your software to work in one area, you can’t assure people your security will work in another. It’s a whole package that either works or not. Much in all as I liked the international aspect of Bitbond, I have serious doubts about supplying such sensitive personal information to any organisation with software issues. While I have researched their methods, I have not opened an account and tested them and would have strong reservations about advising anyone else to do so. Bitcoin transactions attract hackers like bees to honey so you can’t be over cautious, in my view.

Minimising the risks

The risk with any form of lending, is the person could default and not repay the loan. Harmoney use the same credit collection practices as any other lender, so the risk is no higher than if you loaned the money through a solicitor, in my view, with one huge exception: if the person defaults I’d lose $25 and not $2,000.

The interest rates with Harmoney P2P loans range from 9.99% to over 39%. The risks rise accordingly in relation to the interest rate. The higher the rate, the higher their assessment of the risk of default but there are some ways to reduce the effects a default would have on your total portfolio:

  1. Only buy one note in each loan. If you want to buy 5 notes, buy one note in 5 different loans, as opposed to 5 notes in a single loan. The chances of a default wiping out your investment are reduced through diversification. If one person defaults you will only lose $25, not $125 and wipe out your whole investment.
  2. Your greatest risk is at the very beginning when you have the least number of notes to diversify with. One default when you only have one or two notes, is devastating. One default when you have 50 notes is not a tragedy.
  3. Accept the fact that there will be some defaults and they can occur in any assessment score category. Just because the person is scored A1, doesn’t mean the loan is bullet proof either. It does mean that statistically there is less risk of a default than an F5 loan.

To reduce the risks invest in many notes right across the risk range. Reign in the greed impulse to invest only in the high interest notes. It’s easy to see the A1 notes at 9.99% as low returns, compared to those at 39.99% but even at 9.99% you are investing at a rate far higher than any bank will offer you and you are able to invest small amounts. Try that with a bank!

I started with 10 notes in March this year. They were spread across each score category. To date none of them have defaulted, all have been making payments on time. Today (September 2016), I have 49 notes, one has been fully repaid, four are late with one payment and none have defaulted (so far!). Even if all four default the total return after tax, on my Harmoney protfolio will be 16.47%. Try getting that from any institution and in only $25 investment increments!

In the next installment we’ll look at some strategies to maximize your return, supplement your portfolio and reduce your risks as you create a P2P investment portfolio.

P2P Lending as an investment for beginners

Posted By on September 7, 2016

Following on from our Pension Crisis articles:

Just for the record, I’m not a financial consultant or involved in the financial industry in any way. I am not in any affiliate program or any other arrangement to receive a commission or any form of reward for the information that follows. If you copy what I did, I will receive no benefit at all.

I have some shares in a blue chip company that has done better than a lot of other blue chip companies but they are currently yielding only 6% ROI (given the performance of the ASX that’s not doing too bad). You don’t hear stories of fortunes made on the stock market any more, do you?

If I was going to retire on anything except abject poverty (because my superannuation was used up when I was retrenched) I had to work some kind of investment magic. High interest bank savings accounts were so bad that even the banks didn’t call them that any more! Experience had taught me that unless you had thousands to invest, the only people who come out better off are investment advisors.

Like 99% of people out there, I needed to find some investment with a high interest rate that didn’t require a lump sum to start off and would accept small deposits. As a contractor, my wage was up and down like a yoyo, so I couldn’t even rely on regular deposits, so that ruled out any investment trust. I came across an article for peer to peer lending, purely by accident and decided to do a bit more research. I found several sites that managed P2P Funding. Most wanted over $1,000 to start but to my surprise I found one here, right on my doorstep in little ol’ New Zealand that ticked all my boxes:

1. A high interest return

2. Did not require a lump sum to start up.

3. Could be fed with small deposits

4. Did not lock me in to regular payments.

Realistically when it comes to any form of investment the risks are proportional to the returns. If you want high returns from a high interest rate, you have to be prepared to take a high risk.

The organisation I discovered is Harmoney (there could be others too but I stopped looking) and here’s how they work:

  • Someone wants to borrow money, so they approach Harmoney for a loan.
  • Harmoney vets them the same way a bank does and gives them a score from A1 (lowest credit risk) to F5 for the highest chance of defaulting during the life of the contract. This determines the interest rate they will pay on the loan.
  • They then divide the loan amount into lots of $25, called “notes”. So a $5,000 loan will become 200 notes and publish the borrower’s details, enough to give you some idea, without disclosing the borrower’s identity, like age, location, marital status, owning or renting, years at their current address, monthly income, purpose of the loan, monthly repayments and of course their credit risk score and interest rate.
  • You as lender, can buy a note in that loan and when 200 notes have been bought, the loan becomes official.

Because they are not a bank with a huge administration, with a parasitic management, shareholders, overpaid board members and hundreds of branches, nearly all of the interest is returned back to you.

Once you have opened an account and they have verified who you are, you can start with just one note at $25.00 if you want. They only lend for 3 or 5 years so your money is not tied up too long.

This is no get rich quick scheme and there are risks and in the next instalment we’ll look at those risks.