Glossary of P2P lending terms

Account

Everyone who signs up to Harmoney, whether a Borrower or an Lender, will need to create an Account. Creating an Account does not commit you to anything.

Actual Performance

The real outcome. The result of operations and decisions. Not forecast, the factual outcome.

Annualised

This is when a rate, such as an interest rate or a rate of return on investment, is expressed as a yearly value, even though it may not directly relate to a full year. For example, if there has been 2% interest after one month, this can be recalculated to an annualised return by multiplying by 12, resulting in an interest rate of 24% per annum. As with this example, all annualised rates are often theoretical, and there is no guarantee that it will be achieved.

Arrears

This is the legal term for any repayments that are currently overdue, having missed one or more scheduled repayment dates. If a payment goes into Arrears, Borrowers are charged an Overdue fee.

Borrower

Just like any Marketplace, Harmoney has two sides – people who want to borrow money, and people who want to lend money. Borrowers is what we call the people who want to borrow money.

CCCFA

The Credit Contracts and Consumer Finance Act 2003, also known as CCCFA, is one of the 21 pieces legislation that Harmoney is subject to. You can find out more about the CCCFA here.

Charge Off

When a loan is charged off, it means the Borrower has defaulted on the loan and there is a high probability that no further money will be collected from the borrower.

Consumer Credit

Consumer Credit means credit, i.e. funds, made available to everyday consumers as opposed to businesses. This is the technical term for what Harmoney Lenders are investing in. 

Credit Data

In general terms this refers to all the data associated with the performance of a loan portfolio and/or the credit underwriting processes that deliver that performance. It is sometimes used more specifically to refer to a borrower’s  profile, including their credit bureau file.

Credit Grade

Also known as a Credit Score, or Risk Grade, a credit grade is a ranking of a potential Borrowers creditworthiness based on a level analysis of their credit files and credit history. Harmoney assesses every application against our credit scorecard and assigns a Credit Grade from A1 – F5. Harmoney's risk grades and their corresponding interest rates are displayed here.

Credit Scorecard

This is a mathematical model used to estimate the probability that a Borrower will display a defined behaviour (e.g. loan default, bankruptcy, etc.). Harmoney has a bespoke Credit Scorecard, which it uses to assess every Borrower. The Harmoney Credit Scorecard has been tested against existing credit scorecards in the New Zealand market and been proven to be more robust in most cases.

Credit Performance

This refers to how a loan has behaved in relation to scheduled payments that had to be made. Where a loan has been repaid on time according to the loan schedule then it has performed well, if paid later than schedule it is poorly performing. The term is often rolled up to refer to the collective loan behaviour, to describe the “credit performance” of a loan portfolio.

Dashboard

A single secure place to view all the relevant metrics, messages, warnings, and access the functions to respond to such metrics. Harmoney has both a Borrower Dashboard and an Lender Dashboard on the platform.

Diversification

The concept of investing small amounts of money across many different loans to reduce the impact of defaults on net returns. Harmoney’s fractionalisation model allows our Lenders to spread their Investment over 100s or even 1000s of loans, thus spreading their risk.

Expired

This is a loan in the Marketplace that has been removed due to a lack of funding within the 14 day period.

Financial Markets Authority (FMA)

The Financial Markets Authority (FMA) is the governing body that regulates financial services providers in New Zealand. Harmoney’s Peer-to-peer operating license was issued by the F.M.A. You can find out more about the F.M.A here.

Fractionalisation

Under the Harmoney model, every loan is divided up (fractionalised) into smaller chunks of $25, which we call notes. So, for example a $10,000 loan will have 400 notes ($10,000 ÷ $25 = 400). Lenders then choose how many notes they wish to invest in each loan. This allows Lenders to spread their investment over multiple loans, and it also means each loan is funded by multiple different Lenders.

Guarantee

Harmoney and its related companies/entities do not guarantee any return/yield, nor do they guarantee that a Borrower will fulfill its loan obligations including making payments as and when they fall due for payment.

Gross

This is the return before defaults, fees, taxes are taken out. This is opposed to Net.

Interest Rate

This is the rate at which interest is paid by the Borrowers each year. Specifically, the interest rate is a percentage of the principal which the Borrower will repay over and above the principal repayments each year.  The interest rate is fixed for the term of a loan.

Invest

This is the act of funding loans in the Marketplace.

Lender

Just like any Marketplace, Harmoney has two sides – people who want to borrow money, and people who want to lend money. Lenders is what we call the people who want to borrow money – this is because they are technically Investing their money in each loan, and earning a return on their investment in the form of Interest paid by the Borrowers.

Issued

Loans that have been reviewed, approved, and funded by Lenders.

Lend

This is the act of funding loans in the Marketplace.

Lender

Just like any Marketplace, Harmoney has two sides – people who want to borrow money, and people who want to lend money. Lenders are what we call people who want to lend money. This  person/entity is often referred to as an ‘ Lender’ (see above).

Listing ID

This is a unique code within the Marketplace assigned to identify each individual loan listing, while keeping the identity of the Borrower private.

Loan Book

The collective term for all the loans originated on the Harmoney platform and the collective value of receivables (i.e. what is expected to be repaid). (This term is not specific to any one person, but rather all loans funded across the Marketpace.)

Loan Portfolio

Often used interchangeably with ‘Loan Book’ it refers to a collection of loans. It can refer to a subset of the ‘Loan Book’ such as a specific Lender’s loan portfolio, which would be loans funded by them alone.

Marketplace

Harmoney is a money Marketplace. When you think of a Marketplace, it is where two or more parties come together to perform a transaction, e.g. a local car boot sale or craft market. In a traditional Marketplace, people sell things to other people. In the Harmoney Marketplace, people lend money to people who are wanting to borrow.

Net

This is the return after defaults, fees and sometimes taxes have been removed. This is opposed to Gross return.

No guarantee

Harmoney and its related companies/entities do not guarantee any return/yield, nor do they guarantee that a Borrower will fulfill its loan obligations including making payments as and when they fall due for payment.

Note

Under the Harmoney model, every loan is divided up (fractionalised) into smaller chunks of $25, which we call notes. So, for example a $10,000 loan will have 400 notes ($10,000 ÷ $25 = 400). Lenders then choose how many notes they wish to invest in each loan.

Number (#) of Enquiries

When a person applies for credit and a credit provider requests a copy of the applicant’s credit report, that places a record of ‘enquiry’ on the credit file (regardless of the application outcome). The count of these enquiries (amongst other things) is of interest to credit providers when assessing credit risk.

p.a.

Per annum, per year

Payment Protect

Payment Protect is a waiver product offered to Borrowers in the Harmoney Marketplace. It offers protection to help our Borrowers during unexpected events that may impact their ability to make their loan repayments such as involuntary redundancy, bankruptcy, disability, or death. It’s similar to the repayment protection insurance that most of the major personal loan providers offer their borrowers. The Borrower pays a set fee for the protection and that fee is added to the loan. 

Peer-to-Peer

Also known as P2P, and Peer-to-Peer lending is the practice of everyday, unrelated people lending money to other everyday people without going through a traditional financial intermediary, such as a bank or other traditional lending institution.

Personal Loan

This is a loan that is granted for personal use; usually unsecured and based on the borrower's integrity and ability to pay.

Platform Fee

This is a one-off fee charged by Harmoney to Borrowers to list their loan in the Harmoney marketplace. This is very much like a fee you would pay to list your car for sale trade magazine, or list your house on a real estate website. This fee is retained by Harmoney.

Portfolio Return

The monetary return of all the Loans made on the Harmoney platform.  It is also known as the Index Return.

Pre-payment

This is when a Borrower repays its loan before the agreed terms. A Borrower can make a prepayment at anytime and without notice. Borrowers are not charged any additional fees for pre-paying their loan early.

Principal

This is the amount of money borrowed or invested excluding interest incurred or paid.

Principal Outstanding

The amount of principal currently still outstanding on a loan.  As Borrowers pay off their loan, the principal outstanding reduces.

Realised Annual Return

Realised Annual Return (RAR) is a measure of the actual rate of return on funds invested on the Harmoney Platform. As RAR is based on historic performance that may not be a good indicator of future returns.

In simple terms, RAR takes the income from lending (interest) and deducts the costs you have incurred (credit losses and Service Fees) to provide your net return. This is then divided by the average principal outstanding and annualised to provide your Realised Annual Return or RAR.

You can see your portfolio RAR in your Lender dashboard. It is important to note that RAR is first calculated 90 days after you make your first investment. Until that time no measure of RAR will be available. RAR is a dynamic calculation that will change based on transactions in your portfolio, if there were no further transactions the RAR would remain at its current rate.

RAR does not include tax in its calculation as each Lender’s tax situation may be different.

Regulators

This refers to the various government departments that have been charged with overseeing the implementation of, and ongoing compliance by peer-to-peer providers with, legislation introduced by parliament. For example, see FMA or CCCFA.

Return

A return is the profit made from an investment, net of any fees or losses.  It can be gross or net, expressed as gross or net.  Gross return is interest earned.  Net Return is with fees and losses (and sometimes tax) deducted.

Harmoney and its related companies/entities do not guarantee any return/yield, nor do they guarantee that a Borrower will fulfill its loan obligations including making payments as and when they fall due for payment.

Repeat Borrower

A current borrower who has decided to repay their current loan in-full and replace it with a new loan and borrow more; if their credit grade allows it. This new loan is referred to as a re-write.

Service Fee

This is a fee charged to Lenders for the processing and management of loan repayments. Amongst other costs it covers the cost of the Customer Service and Collections team as they work to ensure Borrowers maintain regular scheduled repayments. 

Static Loss Rate

Sometimes referred to as a static pool analysis. The pool is usually a pool of loans written in a specific month (referred to as a cohort).

Each cohort, each month, has a calculation done of loss (charged off accounts) divided by the total loan value for the cohort in the first month. These values are then plotted.

Within a chart, you will normally see a line for each cohort, all starting month 1 (which means that each cohorts line will be 1 month shorter than the previous cohort).

The resulting lines can all be compared to every other cohort to see how much of the months loans as a percentage have gone to loss compared to other cohorts at the same point in time.

This tells us whether a particular month performs better or worse.

All of these cohorts can be rolled into 1 group, to show the total static loss for the portfolio.

Time Remaining

The 14 day period allotted for loans to be reviewed, approved, and funded by Lenders before they are removed from the marketplace

Unfunded Amount

The unfunded amount is the difference between the loan amount owned by a borrower and the amount funded by lenders on Payment Protect loans. Take for example a $11,000 loan that includes $1,000 Payment Protect Fee. The unfunded amount on this loan is $11,000 - $10,350 = $650. The lender only funds $10,350 ($10,000 paid to the borrower on settlement + $350 Payment Lender Protect Fees paid to Harmoney) of a total loan amount of $11,000.

Unsecured loan

An unsecured loan is one that is obtained without the use of an asset as collateral for the loan

Waived

This is when one or more monthly repayments are waived, i.e. the Borrower does not need to pay that repayment.

Weighted Average

Rather than a straight average, a weighted average is when each component is assigned a weight. These weights then determine the relative importance of each component.  Weightings are the equivalent of having that many like items with the same value involved in the average.

Withdraw

If you have been approved to list your loan in the Harmoney marketplace, you will also be given the option to withdraw your application. If you choose this option, you are not completely deleting your application, and you still have 60 days from the day it was approved to reinstate your initial application.

Yield

This is another word for return on investment.  

Harmoney and its related companies/entities do not guarantee any return/yield, nor do they guarantee that a Borrower will fulfill its loan obligations including making payments as and when they fall due for payment.