Introducing Payment Protect
The repayment waiver that offers Borrowers financial protection and Lenders the opportunity to increase your returns.
Introducing Payment Protect
Introducing Payment Protect
The repayment waiver that offers Borrowers financial protection and Lenders the opportunity to increase your returns.
Introducing Payment Protect
We’re always looking to create innovative products and services that deliver more value back to our customers, and improve their experience with Harmoney. Payment Protect will be just one of what we hope will become a suite of products of mutual benefit to both Borrowers and Lenders, strengthening our peer-to-peer community.
We’ve had great success with the beta testing phase, with around 30% of Borrowers having taken Payment Protect on their loan since the launch of Payment Protect in December 2015.
What is Payment Protect?
Payment Protect is an optional product add-on available to all Borrowers.
Technically speaking, Payment Protect is a ‘repayment waiver’. This means that Borrowers who take out Payment Protect as part of their loan could have their payments waived in certain circumstances.
It is designed to help protect them against unexpected events that may impact their ability to repay their loan, such as involuntary redundancy, disability, terminal illness, or death.
What are the benefits of Payment Protect for you?
As an Investor (Lender) the benefits of Payment Protect to you are a potential increase in Realised Annual Return of around 1% p.a.*
At a single loan level, the repayments you waive could be greater than the Payment Protect fee earned. However, at a portfolio level, the fee income and additional interest could outweigh any waived repayments and fee costs. On a portfolio basis, the net return is expected to increase your Realised Annual Return by around 1%* p.a. on loans with Payment Protect. For example, if 30% of your portfolio were loans with payment protect, your portfolio return would increase by 0.30%. The increase in RAR from is based on financial modelling using forecast. It does not guarantee the actual performance of the loans.
Looking closer, the investor return on Payment Protect is the net of:
+ Payment Protect fee
+ Interest on the fee
– Fees paid
– Repayments waived
= Net Return from Payment Protect
* On loans with Payment Protect.
What does Payment Protect mean for Borrowers?
Payment Protect is a way to remove financial uncertainty by ensuring that a Borrower or their family have relief from their loan repayments during times of financial stress caused by an unforeseen event.
There are two levels of Payment Protect that a Borrower can choose from Partial cover and Complete cover:
| Cover | Included coverage |
|---|---|
| Partial | Terminal illness and death. |
| Complete | Death, terminal illness, disability (due to illness, medical condition or accidental injury) and involuntary redundancy. |
If there is a co-Borrower on the loan and they would like Payment Protect, then both Borrowers must take Payment Protect cover. The Borrowers can have different levels of cover depending on their employment status.
If Payment Protect applies in respect of a loan, the terms on which Payment Protect is provided will be part of the terms of the Loan Contract. The terms on which Payment Protect is currently offered to Borrowers, and the rates at which Payment Protect Fees are currently charged, are available in the Legal Agreements and Interest Rates & Fees sections of this site.
Let's look at some examples:
There are two examples below of a loan with Payment Protect attached vs a loan without it. The first example is a loan where no waiver is applied. The second shows a loan that has a waiver event. Both examples are illustrative and do not represent the actual cashflows.
Loan without a waiver event occurring:
| Protect Impact | Without Protect | With Protect | Variance | Notes |
|---|---|---|---|---|
| Borrower Loan | ||||
| Loan Amount before Payment Protect Fee | $10,000 | $10,000 | $0 | No change |
| Payment Protect fee (Borrower) | $0 | $750 | +$750 | The Payment Protect fee (paid by the Borrower) is calculated as a percentage of the loan amount (rounded to the nearest $25). |
| Total Loan Amount (principal) | $10,000 | $10,750 | +$750 | The Borrower Payment Protect fee is added (capitalised) to the loan amount |
| Lender Funded Amount | $10,000 | $10,275 | +$275 | Lenders do not fund the Total Loan Amount. They fund the loan amount before Payment Protect + the Lender Payment Protect Fees. |
| Lender Income | ||||
| Payment Protect Fee | $0 | $750 | +$750 | Payment Protect Fee income |
| Interest | $2,742 | $2,948 | +$206 | Lenders receive interest on the Total Loan Amount although they have only funded part of it. |
| Lender Income | $2,742 | $3,698 | +$956 | Payment Protect Fee + interest Income increases Lender income. |
| Lender Expenses | ||||
| Payment Protect Lender Fees | $0 | -$275 | -$275 | Lenders pay a 20.00% p.a. sales commission and 15.00% p.a. management Fee to Harmoney (each is rounded to the nearest $25) |
| Waiver | $0 | $0 | $0 | This example assumes no repayment waivers apply |
| Lender Fee (Tier 2 17.50%) | -$480 | -$516 | -$36 | Lending Fees increases as the borrower pays more interest. |
| Net expenses | -$480 | -$791 | -$311 | Lenders incur $311 more in expenses on this Payment Protect Loan. |
| Total | ||||
| Returns (pre-tax) | $2,262 | $2,907 | +$645 | Lender return increased $1.54 per note, due to Payment Protect |
Loan with a waiver event occuring:
| Protect Impact | Without Protect | With Protect | Variance | Notes |
|---|---|---|---|---|
| Borrower Loan | ||||
| Loan Amount before Payment Protect Fee | $10,000 | $10,000 | $0 | No change |
| Payment Protect fee (Borrower) | $0 | $750 | +$750 | The Borrower Payment Protect fee (paid by the Borrower) is calculated as a percentage of the loan amount (rounded to the nearest $25). |
| Total Loan Amount (principal) | $10,000 | $10,750 | +$750 | The Borrower Payment Protect fee is added (capitalised) to the loan amount |
| Lender Funded Amount | $10,000 | $10,275 | +$275 | Lenders do not fund the Total Loan Amount. They fund the loan amount before Payment Protect + the Lender Payment Protect Fees. |
| Lender Income | ||||
| Payment Protect Fee | $0 | $750 | +$750 | Payment Protect Fee income |
| Interest | $2,742 | $2,948 | +$206 | Lenders receive interest on the Total Loan Amount although they have only funded part of it. |
| Lender Income | $2,742 | $3,698 | +$956 | Payment Protect Fee + interest Income increases Lender income. |
| Lender Expenses | ||||
| Payment Protect Lender Fees | $0 | -$275 | -$275 | Lenders pay a 20.00% p.a. sales commission and 15.00% p.a. management Fee to Harmoney (each is rounded to the nearest $25) |
| Waiver | $0 | -$761 | -$761 | In this example, two month's repayments waived due to Borrower redundancy. The forecast waiver rate for individuals taking Complete Cover is 24% of the Payment Protect. Note: The forecast waiver rate for individuals taking Complete Cover is 24% of the Payment Protect fee paid by the Borrower (e.g. $750 X 24% = $180). |
| Lender Fee (Tier 2 17.50%) | -$480 | -$516 | -$36 | Lending Fees increases as the borrower pays more interest. |
| Net expenses | -$480 | -$1,552 | -$1,072 | Lenders incur $1,072 more in expenses on this Payment Protect Loan. |
| Total | ||||
| Returns (pre-tax) | $2,262 | $2,146 | -$116 | Lender return is reduced 28c per note, due to the repayment waivers |
Loan Terms used in examples: Interest Rate 17.50%, 36 month Term, Payment Protect Borrower Fee 7.24%
Lenders' Tax treatment for loans with Payment Protect
The tax treatment for Payment Protect will be different for each Lender, depending on their personal circumstances and whether the Lender is a cash basis or non-cash basis for New Zealand income tax purposes. Therefore it is recommended that independent tax advice is sought before participating in Payment Protect loans. The information below is supplied as guidance only.
Tax returns
Harmoney does not pay income tax on the Payment Protect Fee on behalf of Lenders. Lenders are responsible for including the Payment Protect Fee as income in their income tax returns and for claiming any deductions referred to below that are available to them. Lenders should seek independent tax advice when preparing income tax returns.
Tax treatment
The tax treatment of a Payment Protect loan is different for Lenders taxed as a cash basis person and those taxed as a non-cash basis person (see definition below).
| Item | Tax Treatment | |
|---|---|---|
| Cash basis | Non-cash basis | |
| Payment Protect Fee | Taxable income when received, over term of loan | Taxable income, income spread over term of loan under the financial arrangements rules |
| Sales Commission | Deductible expense when charged (i.e. at commencement of loan) | Deductible expense, deductions spread over term of loan under the financial arrangements rules |
| Management Fee | Deductible expense, deductions spread over term of loan as prepaid expenditure | Deductible expense, deductions spread over term of loan under the financial arrangements rules |
| Lender Fees | Deductible expense, deductions spread over term of loan | Deductible expense, deductions spread over term of loan under the financial arrangements rules |
| Waiver of Principal (inc. waived Payment Protect Fee) | Deduction for interest which has been included as taxable income but not received (if any), at conclusion of loan No deduction for waived Principal or Payment Protect Fee unless Lender is a dealer in financial arrangements or carries on a business of lending. |
|
Cash basis person
A Lender is a cash basis person for an income year if:
- The value of the Lender’s income and expenditure in the income year under all financial arrangements to which the Lender is a party is $100,000 or less; OR
- On every day of the income year, the absolute value of all financial arrangements to which the Lender is a party added together is $1,000,000 or less; AND
- The result of applying the following formula: (accrual income – cash basis income) + (cash basis expenditure – accrual expenditure) to each financial arrangement to which the Lender is a party at the end of the income year and adding the outcomes together is $40,000 or less.
If a Lender is not a cash basis person the Lender will be a non-cash basis person for tax purposes.
How do I know which loans have Payment Protect?
Loans that have Payment Protect have a small shield () next to their LAI number. This shows the loans have Payment Protect attached. Clicking in to the detailed view shows the Payment Protect terms and pricing.
