Testing bitcoin as a Loan platform

Intro:

Here is the ongoing results of an experiment to use Bitcoin and P2P Lending platforms for a Personal Loan.

I needed some spare cash and I had the choice of using the credit card or trying something different. Being an early adopter, I decided to try something different and give Bitcoin P2P lending a try.

I signed up for loanbase.com and btcjam.com providing more details than one would normally be happy with to get my credit rating as good as possible.

For BTCJam the decision was to take out a loan as BTC Only. For loanbase.com the loan was linked to the US Dollar, making sure that if bitcoin were to rise suddenly, the repayments wouldn’t be the extra cost of the bitcoin on top of the interest.

BTCJam interest is much higher than loanbase.com as loanbase reports the interest PA while BTCJam is per month. Making the PA interest incredibly high, higher than a credit card. Its almost like the website is designed to hide this fact until the loan has been created.

After creating the loans and waiting for them to be approved for listing, a few google searches shows that BTCJam is not the favourite of the internet with comments that many scammers exist within the platform. These comments and the incredibly high interest rate of BTCJAM provided enough reason to pull out and delete the loan listing. However to test the waters, the loan listing was left to see which one would be funded the quickest and what questions would be asked by the lenders.

Loans:

BTCJAM:

https://btcjam.com/listings/57088-holiday-in-dublin
Funded 100% without question in 12 hours. Due to the higher Interest rate. Leaving within BTCJAM for a week until I truly need to use the cash. As the repayments start 30 days from the withdraw.
Here are the Specs:
AMOUNT @ RATE ฿7.00 @ 4.10%
PAYMENT ฿0.75020 monthly.
The loan is advertised at 4.10% but the hidden element is this is Monthly.
0.75020 * 12 = 9.0024 Bitcoin or 28.61% Interest if paid out over the 12 months. This is the Yield figure on BTCJam website next to the loan. That is a considerable amount of Interest on top of the principle. Below are the Risks/Cons:

  • This is BTC loan. So if BTC goes up, the loan repayments go UP. Looking at last 6 months, bitcoin price is increasing.
  • 28.61% + Fees + broker Fee converting AU to Bitcoin + Buy/Sell fluctuations. That is a lot of Fixed Cost and Variable Risk.
  • The late payment fee amount is the greater value of 5% of the unpaid amount or the bitcoin equivalent of 15 USD. – Don’t be Late!
  • Service Fee of 4% taken off amount provided! 0.28 Bitcoin. This is a little hidden as its taken out when funds are withdrawn. So any amount needs to be increased to cover the Fee, making the Loan more expensive. 2.28 Bitcoins of Interest + Costs for 12 months.

Pros:

  • Quick and Easy No questions asked Loan. If you are in a Bind, it will work. Best to pay back the Loan ASAP.
  • No Banks.
  • Loan can be linked to US Dollar , removing bitcoin rising risks.

Loanbase:

UPDATE 2016-04-11!! Loan base have updated their loan calc. Making loanbase as costly as a credit card. Sad.. Unless the APR can get closer to a traditional loan, then why take the high risk of BTC issues.

https://loanbase.com/loan/browse/lid/24038/4200-00-debt-consolidation-loan-for-9-months-with-monthly-payments
Attempt #2, I set the wrong Type of Loan accidentally and it was rejected. Lesson, double check all pull down menus before submitting.
Listed on 2016-03-08 06:19 AEDT
9.8% 24 Hours.
16.9% 13th March (6 Days)
Reading http://bitreview.com/lending/loanbase, appears Investors need to manually invest in each load, unlike BTCJam. That explains the slow process.
2016-04-11 Loan contract expired. Not enough people put up BTC. I expect this is due to the manual process, unlike BTCJam. Lot of work with little benefit.

Here are the specs:

Fixed rate: 8.45000% APR: 11.26667% Oh wow an APR! Lets verify.
Firstly loanbase provide a nice table outlining costs and interest. Much less hidden fees. Doesn’t feel like they are taking us for a ride, unlike BTCJam.
$4638.87 – $4200 = $438.87 in Interest and Fees. Markup of 10.4%. Much better than 28.61 + Fees. Below are the Risks/Cons:

  • Max Loan is 9 Months. Would be nice if it was 12 months.
  • Should price of Bitcoin lower, the repayments are the same.

Pros:

  • This loan is linked to US Dollar. ( The same could have been done for the BTCJam loan to remove Bitcoin flux risks, however the Interest Rate would still be the same, our primary decision).
  • Provides a nice table outlining ALL charges, interest and payments.

Converting to AU$

 

Monthly Costs:

 

Final Loan Costs:

BTCJam:

2016-03-13: Clicked Grab Loan. 7.00 Bitcoin.
BTCJam Grabbed their fee: 6.72000000 = 0.28 Bitcoin. Current Rate: $157 Australian Fee for Loan.
2016-03-13 18:11 Sent 0.01 Bitcoin to my https://btcmarkets.net/ Address. This is the first time connecting the two systems and I don’t want to make a typo, loosing all my Bitcoins! One of the scary parts of Bitcoin.
2016-02-13 18:44 Payment arrived. Phew, Sending rest. 6.709299 Bitcoin.
2016-02-13 21:01 Put BTC on market for $556.00. 6.71829900 Bitcoin.
Australian Dollars Conversion: $3,703.62
2016-04-11 Loan Repayment time. Discovered BTCmarkets doesn’t support my Bank, transferring cash to a Bank that does support BTCMarkets. Delay 1 day.
2016-04-13 Finally finished converting AU to Bitcoin and paid the loan payment. Then found out I can’t pay additional payments to lower the interest! the payments are fixed. grr. To BTCJam credit, they responded to my email quickly, see BTCJam Letter One

 

References:

BTCJam Letter 1:

John replied:

Hello David,
Thank you for your email. You can repay your loan ahead of time, but the interest rate cannot be modified because the initial agreement cannot be modified unilaterally. It certainly helps your credit and your relationship with your investors, for future reference. I am not sure which loan types you are referring, because we are a platform that helps what is known “peer to peer lending”, quite different from the mainstream system. In our case, the interest rate reflects the risk and also the price of the time preference, that an individual investor is willing to invest at. I know it is a little bit difficult to analyze it, because the mainstream system is a centralized one, where risk is assigned to institutions (and in many cases, to the taxpayers) and not to individuals. Thank you for your interest in the BTCjam community!

Best,
BTCjam Support Team

APR 13, 2016  |  07:49PM PDT
Original message
David wrote:

Why is there no method to repay a loan off early to lower the Interest?
BTCJAM has already taken its cut.
This is a standard feature of all other loan types.
Thanks,
David

 

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