>and a flat fee of 5% of each loan funded per year the loan is held
interesting definition of flat fee. It sounds to me like additional 5% interest, isn't it?
interesting definition of flat fee. It sounds to me like additional 5% interest, isn't it?
Interest accrues as a function of time. Yes, one could model this fee as an interest rate by taking into account the loan's expected term. But the 5% is not compensation for the time value of money or risk of lending–it is a facilitation payment. As such, calling it a fee seems acceptable.
Since the 5% doesn't change with the amount lent, or other factors, "flat" seems an appropriate adjective (though it is more commonly used to refer to a fixed dollar, versus percentage, amount).
EDIT: since the "fee" does appear to vary with a loan's term, yes, I think this would be correctly characterizable as interest.
"per year the loan is held" sounds exactly this.
>Since the 5% doesn't change with the amount lent
that is the definition of a '%' sign, isn't it? :)
Using '%' with "per year" is a definition of interest, isn't?
Edit: wow, i just now recognized another possibility - charging 5% x [expected years] upfront - that would be "fee", yes. One fr!cking large fee. Who in sane mind is going to pay it? That sounds like preying on people who have no other choice.
I was not aware of this. You are correct - this looks more like interest than a facilitation fee.
> that is the definition of a '%' sign, isn't it? :)
Transaction fees are usually assessed as a fraction of the value transacted. A flat fee, within this context, is a non-varying percentage of the transaction value, e.g. 5%. A non-flat fee has moving parts, e.g. 5% for the first $100, 4% for the next, etc. (or 5% if the interest rate is less than 15%, 10% if above, etc.).
It is an ambiguous term. I try to avoid it. Instead of calling a fee "flat" to emphasise its simplicity, make it simple.
It might be more precise to structure the service fee as a fixed percentage of the loan amount regardless of the term. We opted to structure it as an annual rate mainly for simplicity: it can be added to lender interest so that loan applicants can see the full cost of the loan in a single rate, without any other unexpected fees.