Summary of Harmoney

Borrowers: Borrow up to $70,000 (unsecured) at between 6.99% and 29.99% per annum.

• Fees of $200 or $450 apply per successfully funded loan.
• Early repayment permitted without penalty.
• Unlike banks and traditional lenders, applications are made online and only take a couple of minutes. 
• 99% of loans are funded within 24 hours.
  

Our Guide to Harmoney

• In this guide, we analyse Harmoney, the first and largest peer-to-peer lending (P2P) platform to launch in New Zealand.
  
• Since its debut in 2014, the platform has allowed retail investors (i.e. individuals) to lend money to New Zealand consumers seeking personal loans.
  
• Harmoney has facilitated more personal loans than any other P2P provider, and by December 2018 the business had lent a cumulative $750m+, significantly ahead of others such as Squirrel Money ($25m).
  
• Lenders are enticed by higher returns than anything comparative from a bank or finance company.
  
• Borrowers are induced by competitive interest rates, with 6.99% p.a. being the introductory rate for applicants with good credit. 
  
• Harmoney has lent to almost 40,000 borrowers on its platform, with retail investors (i.e. individuals) representing 25% of the funding volume and institutions representing the rest.
  
• A point of difference between Harmoney, other peer to peer lenders and banks, is that Harmoney provides both personal loans and business loans. Further to that, none of the loans advanced are secured against any collateral (car, home, business or personal property). This can make the investment a higher risk. 

Harmoney charges fees to both lenders and borrowers and does not lend any money itself. It acts as the middleman by way of providing a platform.

In this guide, we look at Harmoney for Lenders and Harmoney for Borrowers separately to best understand the pros and cons of this investment and borrowing platform.  We cover:
1. Harmoney Borrowing Review

• Harmoney Interest Rates
• Benefits Of Harmoney​
  
• Harmoney Fees – How Fees Are Charged To Borrowers And Lenders
  

2. Harmoney Lending Review

• Harmoney ​Default Rates
• Harmoney Borrowing Volumes
• Harmoney Security
• What If A Borrower Doesn’t Repay A Harmoney Loan?
• Withdrawing Harmoney Funds​
  
• Harmoney Investor Must-Know Facts

Harmoney’s borrowers are, historically, individuals wanting to borrow money to repay debt or finance home improvements. Harmoney has a strict application process - only individuals who meet the following criteria can borrow from the platform:

• Be at least 18 years old
• Be able to afford the loan you are applying for
• Provide identity confirmation with either a valid New Zealand Driver’s License or a valid New Zealand Passport.
• Provide bank statements for the last three months (these will be processed and assessed by a credit agency to see your borrowing ability)
• You’ll need to list all income sources, your assets (e.g. house, investments, savings etc.), liabilities (e.g. credit cards, personal loans etc.) and your mortgage or rent expenses (separately from liabilities)

Assessments are made fairly quickly, and if your loan is approved, you have 60 days to accept it. You will be assigned a credit grade which ultimately decides the interest rate on the loan. The better your credit grade (i.e. A1 – A5), the lower the interest rate. Harmoney offers a fixed rate range from 6.99% p.a. to 29.99%. If you accept a loan, you'll be charged fee, added to the loan total, depending on the amount borrowed:

• $200 for loans under $5,000
• $450 for loans $5,000 and over

When a loan application is approved, it is assigned a "grade" with a corresponding interest rate. Harmoney currently offers the following interest rates:

A major benefit of borrowing through Harmoney is that it's 100% managed online without paperwork.  Decisions are made quickly, with a personalised interest rate which takes into account your credit history, income and assets. 

Another benefit is the zero penalty for paying loans off early. This differs from other personal loan providers, and early repayment is very common on the Harmoney platform, with approximately 11% of all completed loans being paid off early. The minimum, maximum and average loan are displayed in the table below.

Have the best chance of being funded
The speed and success of a loan being funded will depend on how well you write your loan purpose description. A single sentence will convey distrust, whereas a full paragraph as to the specific purpose of your loan will persuade lenders to fund your loan. 

Borrowing limits based on credit grade

Borrowers are required to pay their interest rate to lenders as well as a fee to Harmoney, and a separate fee if they want to contribute to a payment protection insurance premium.

Harmoney is not a lender, it is a platform and does not receive interest income from borrowers. Instead, it earns fees from both borrowers and lenders. None of the fees collected are paid to lenders.

Revenue from Borrowers

• Each borrower pays a $200 or $450 fee when they receive their loan funds.
• A late payment or failed payment levies an overdue fee ($20 every 30 days) and dishonour fee ($15 per transaction) respectively.
• Borrowers also pay an additional fee if they wish to borrow with payment protection insurance.
• Harmoney also plans to introduce a “monthly account maintenance fee” similar to a bank account fee for borrowers to use its platform.

 
Revenue from Lenders

• Retail lenders (i.e. individuals investing in Harmoney) pay a "Service Fee" – 1.25% of the principal and interest repaid on each note. This fee is for managing borrower repayments and administering the loan for that lender's benefit.
• Lenders are also charged a “Lender Fee” for Harmoney to operate the platform and supervise all transactions. This equates to 20% of all interest received for a total investment below $10,000, 17.5% for investments $10,001 to $49,999 and 15% for total investment above $50,000. This means if your loans receive $1,000 per year in interest from a $9,000 investment, Harmoney will charge you a fee of $200 (20% of the gross interest received).
• Any loans which have “Payment Protect” added on also incur additional fees for the policy cost. This includes a 15% fee of the value of the payment protection policy. Harmony charges this to administer the platform. 

Harmoney ​offers an alternative to putting money in a term deposit, corporate bond or an investment in the sharemarket. The specs are simple - you lend your money directly to other Kiwis looking to borrow, for a 3 to 5 year period. Most of the loans are for the purpose of personal debt consolidation, but a review of the loan requests on any given day will show a diverse range of reasons for borrowing. Loans usually range from $5,000 to up to $70,000 and interest rates charged to the borrower fall between 7% and 30% depending on their credit risk. 

The platform is not without its risks and rewards, which we discuss in detail below. ​

Harmoney advertises returns up to to 13%+ per annum, but the actual rate of return you'll receive will depend on your willingness to take a risk with your money. Default rates are minimal in the low-risk groups (<1%) but explode out to around 20% in the highest risk group. With that in mind, Harmoney periodically presents a Realised Annual Return (RAR) in their investment page of funds invested in their platform. 

Every retail investor manually chooses what loans to invest in, meaning your money won't fund riskier loans unless you say so. Your role becomes a secondary credit analyst, weighing up the risks of an individual loan before deciding to fund the borrower. 
​
Who can you lend to?
Harmoney presents investors with only qualified borrowers. Specifically:

• Borrowers must be over 18 years of age, have good credit history and be a New Zealand resident.
• Each loan is classified within groups "A" to "F", depending on the individual’s income and credit risk.
• Groups A and B offer the lowest risk and lowest return, C and D a medium risk and return, with E and F carrying the highest level risk and return.

Diversification of investment
To protect an individual investor's capital and RAR, Harmoney mandates a specific level of diversification so that no lender is overly exposed to a default by one borrower. It is this diversification afforded to lenders that is the principal credit protection Harmoney offers. It works with each loan being divided into $25 “notes”, and an individual investor lending one note to one loan. For example, If you lend $1,000 to Harmoney, this will be invested into 40 different loans ($25 X 40 loans = $1,000).

Example of loans
We present a sample of loans waiting for funding below; you can see details of the purpose, the Harmoney-assessed grade, term (months), loan amount, estimated monthly repayment and the amount funded. 

Harmoney launched in late 2014 and is a relatively young platform, so the default rate data doesn’t take into account more than 4 years of transactions. To date, the overall default rate sits at 3.05% across all loans.
​
Borrowers are graded A-F, dependent on their risk profile. Within each group are five sub-groups (1 = best, 5 = worst). As of March 2018, Loans in grade F have seen 19.4% of all money borrowed written off, compared to less than 1% written off for grades A and B. Harmoney's data is presented below:

The amount a platform lends is important for two principal reasons:

1. Credit Modelling: The more Harmoney lends, the more data it has to build its credit processes and report to investors. 2014-2018 is a short period for credit assessment data collection, and as more loans are issued Harmoney gains more experience in evaluating credit risk.
2. Higher investment opportunities: The more borrowers, the more funding opportunities for investors. The more the platform lends, the greater the probability of new lenders available to fulfil future loans.

​
Cumulatively, Harmoney has lent $676m since launching in 2014. While retail investors have provided 25% of the money lent out, Harmoney continues to rely heavily on its institutional partners (Heartland Bank and others) to fund the loans issued.​

All Harmoney loans are unsecured personal loans. The average value of a loan across all risk categories is $18,000. The principal risk is a large number of borrowers defaulting on their loan commitments, resulting from negative economic conditions and/or poor credit assessment by Harmoney.

Harmoney claims lenders are protected in two principal ways:

1. Fractionalisation – Harmoney promotes diversification by splitting up loans. Each loan is divided into packets of $25 called “notes”. Individual lenders lend $25 to each borrower, reducing exposure if one borrower defaults.  
2. Credit assessment - Harmoney claims to have implemented appropriate systems and processes for determining the suitability of a borrower and his or her ability to afford loan repayments

​Harmoney is in its infancy as a lender. With just over 50 months of data as at December 2018, the platform is still learning.

If a payment fails, Harmoney charges a dishonour fee. Harmoney then contacts the borrower to ask for payment – in most cases, the payment is promptly made. If not, Harmoney will continue to follow up with the borrower and may hire a debt collection agency to take over the collection of the loan. After 120 days the loan is considered to be in default and can be written off unless there are facts to suggest it can be collected at a later date. All costs associated with the collection of the loan are paid by Harmoney and not the lender. This includes debt collection, legal fees and debtor management. You can read more about the Harmoney collections process here. 

A lender will be notified when a borrower’s loan goes into arrears and/or is written-off. With the $25 fractionalisation, lenders are diversified against defaults. ​

Investors (i.e. lenders) can only withdraw money from the Harmoney platform when it has been repaid by a borrower. Lenders cannot withdraw funds that are currently invested. This means that once your money funds a loan, you will not have access to it until the borrower has repaid the loan you invested in. This is different to a bank's term deposit, which has a break penalty fee for immediate access. ​