Price of a loan

"DarkProtoman" wrote

Then you have an asset of $2250, not $2500.

Not if you're showing $2500 as a receivable.

Book value is what the borrower owes you. Which yous said was $2250.

There's usualy a HUGE discount on debt transactions. Assuming you can even sell one note, you're looking at anywhere between $1500 and $2000 net to you, depending on how bad the borrowers credit is and the rate of interest on the note.

It's on the assets. The payments are recievables.

OK, then how do banks make any money on lending money? Apparently, they do, since they're still in business and able to pay (exceedingly small) interest rates on their deposits. And here's about the note: It's a revolving note with 20% interest monthly, and, while the borrower's credit is not so good, it's secured with a credit default swap w/ Bank of America, who promises to pay back the full $2500 if the borrower defaults, in exchange for $25 quarterly payments.

Receivables *are* assets.

Here's how it works: when you make the loan, you credit the cash loaned, and you debit the Note Receivable account for the amount loaned.

When the client makes a payment, you should be crediting the Note Receivable (asset) account for the principal portion, and also crediting Interest Income (and debiting cash for the total amount received).

So at all times, the asset account "Note Receivable" should reflect the actual balance owed. This is why it is strange for you to say that you have "a $2500 loan as an asset" on which the debtor only owes $2,250.

It can't be both.

Either you have an asset, a receivable, that is worth $2,500, *or* the debtor owes $2,250 -- in which case you have not been properly recording the transactions.

~d. jettster

Payments received REDUCE your loan asset and increase your bank account (also an asset).

They charge a shitpile of interest more than they pay out on savings.

They make money on fees as well as the spread between interest paid and interest charged.

You mean 20% annually, accrued monthly. Otherwise it's like 240% annual rate (more if compounded).

IE: 24% annual cooks down to like 2% per month.

I'm so unsure of what you have, and probably others are too. $25 a quarter? You'll never - NEVER - collect the balance at that rate.

Interest alone accrues about $41 a month on $2500 at 20% annual rate (simple interest)

No I do MEAN 20% compounded.... they guy I lended to is so desperate for a laptop, he'll pay ANYTHING.

"DarkProtoman" wrote

No one will buy that note from you.

Why not? Would'nt they want huge interest payments?

"DarkProtoman" wrote

For starters, you don't have a grasp on what it is you do have (if indeed you have anything at all). No one will take you seriously until you can clearly define what it is you have to offer. Secondly, for any normal factoring buisness or lender, they have laws to follow, and 20% per month is most likely illegal in all the states in this country. Thirdly, there isn't any collateral on the note that seems to attach. Placing any buyer of your note in dead last place for getting paid when the guy who can't afford a laptop goes south on his payments.

I have a credit default swap in place w/ my bank (the guy I'm loaning money to is quite creditworthy) that I'll simply assign to the buyer of the note for the buyer's security. The term of the loan is 37 months. The payments are calculated thusly:

Bal. $2500 Accrued interest: $500 Total Bal. owed: $3000

Rinse and repeat.

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I KNOW there's a mistake, it should be $2250. And I did the calculations. It's REVOLVING, ie like a credit card, you charge interest on the monthly outstanding balance. And it DOES decrease. He's making a 25% payment. About the whole "why would he borrow", he's REALLY dense.

It would be worth your while to make sure he's not engaged with an individual of similar capacity.

~d. jettster

"DarkProtoman" wrote

Then maybe sell the loan back to him.

That would be interesting. Wouldn't he just be paying himself then?

"DarkProtoman" wrote

Explain to him how much he'd be making in interest on the payments he gets from himself. You do such a fine job of it.

Is that sarcasm I taste in your post? What if I did that to my mortgage company?

"DarkProtoman" wrote

Be sarcastic? Or have them sell your note to you?

They'd probably love to sell you the note on your house to you.