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  • FIRST POST
    • mortgagenoob
    • By mortgagenoob 9th Oct 17, 3:26 PM
    • 9Posts
    • 0Thanks
    mortgagenoob
    How safe is Funding Circle?
    • #1
    • 9th Oct 17, 3:26 PM
    How safe is Funding Circle? 9th Oct 17 at 3:26 PM
    I am currently trying to decide what best to do with my savings to beat inflation without tying it all up for many years. I have come across Funding Circle and put in £10K to start off with, the returns look great at 7.5% and I would like to put in the rest (about £240K) but I'm not sure I understand the risks properly, would I be foolish to put that amount in? Any advice would be greatly appreciated.

    Many thanks.
Page 1
    • economic
    • By economic 9th Oct 17, 3:45 PM
    • 2,134 Posts
    • 1,162 Thanks
    economic
    • #2
    • 9th Oct 17, 3:45 PM
    • #2
    • 9th Oct 17, 3:45 PM
    i have about 6% of my net worth in P2P across 11 different P2P platforms. im comfortable with that and not looking to invest more. key thing is to diversify across platforms as there is platform risk you have to consider.
    • eskbanker
    • By eskbanker 9th Oct 17, 4:02 PM
    • 5,902 Posts
    • 5,861 Thanks
    eskbanker
    • #3
    • 9th Oct 17, 4:02 PM
    • #3
    • 9th Oct 17, 4:02 PM
    I am currently trying to decide what best to do with my savings to beat inflation without tying it all up for many years. I have come across Funding Circle and put in £10K to start off with, the returns look great at 7.5% and I would like to put in the rest (about £240K) but I'm not sure I understand the risks properly, would I be foolish to put that amount in?
    Originally posted by mortgagenoob
    As above, the short answer is yes, but I'd suggest you need to look at the bigger picture regarding assets and objectives - you must have some non-obvious reason for wanting to keep quarter of a million quid in easily-accessible cash form, are you imminently looking to buy/build a property perhaps?
    • mortgagenoob
    • By mortgagenoob 9th Oct 17, 5:11 PM
    • 9 Posts
    • 0 Thanks
    mortgagenoob
    • #4
    • 9th Oct 17, 5:11 PM
    • #4
    • 9th Oct 17, 5:11 PM
    As above, the short answer is yes, but I'd suggest you need to look at the bigger picture regarding assets and objectives - you must have some non-obvious reason for wanting to keep quarter of a million quid in easily-accessible cash form, are you imminently looking to buy/build a property perhaps?
    Originally posted by eskbanker
    The money is from the sale of my last property and I'm not sure when I will be buying my next, it could be in 6 months or maybe 3 years I just don't know yet. I'm looking for something to beat inflation while not being a massive risk.
    • jpi
    • By jpi 9th Oct 17, 5:16 PM
    • 4 Posts
    • 3 Thanks
    jpi
    • #5
    • 9th Oct 17, 5:16 PM
    • #5
    • 9th Oct 17, 5:16 PM
    Like the OP I have recently lent £10k through Funding Circle with a view to lending more once I better understand the system and the risks, although it is unlikely that I would be lending as much as £240k. I started about a month ago and it has taken that month to get all my 10k lent, but allowing for there being no return on the money that is waiting to be lent the accrued interest I have made is roughly in line with my expectations and the predictions given on the website.

    One of my main concerns at the moment is how quickly one could take out money in the event of even a modest economic downturn. If you want to withdraw money quickly you use an automated selling process to sell your loan parts to other lenders who wish to increase their lending. At the moment there is a queu of would-be lenders all waiting a few weeks for borrowers to take their money so I imagine that if I wanted to take my money out quickly at the present time my loan parts would be almost immediately purchased by those would-be lenders - no problem at the present time.

    My understanding is that during the period since Funding Circle started it has produced steady returns for lenders, a graph on the website shows that the returns have roughly matched the FTSE100 but without any of the volatility associated with equity investments. So, considering that it has been a good period for the FTSE100, Funding Circle looks very attractive to new lenders, myself included, so perhaps it is not surprising that there is a queu of would-be lenders today. However, what would happen if there was even a fairly moderate economic downturn that resulted in some increase in the number of borrowing companies that go bankrupt? Suppose that caused a significant number of lenders to panic and want their money out - would that not quickly turn a queu of would-be lenders into a quey of lenders all wanting out? Would that make an exit by selling loan parts to other investors almost impossible?

    There is of course another way to take your money out of Funding Circle, you can turn off reinvesting and wait till all your loans come to termination, that would give you a return of capital plus interest, over a period of about five years, that being the duration of the longest loans made through Funding Circle. If this happens during an economic downturn you could expect a higher than normal proportion of your borrowers going bust but unless the downturn is really catastrophic I would have thought you would at least get your money back, but you would have to wait a few years to do so, a quick exit might not be possible.

    I really am ignorant about money, so I would be grateful if people could tell me if the above concern is justified or if I am misunderstanding the way that P2P lending works.
    Last edited by jpi; 09-10-2017 at 9:21 PM.
    • bigadaj
    • By bigadaj 10th Oct 17, 1:18 AM
    • 10,803 Posts
    • 7,100 Thanks
    bigadaj
    • #6
    • 10th Oct 17, 1:18 AM
    • #6
    • 10th Oct 17, 1:18 AM
    I always get funding secure and funding circle mixed up so don't want to comment specifically, I know ow one has at least had many defaults.

    These are large sums of money and you need to do your research, head over to the p2p independent forum and do some reading, it's a good resource with people,ranging from newbies to people who have been lending for a decade or more.

    For me p2p is a useful diversifier, currently have lent around 2-3% of net worth and looking to increase to 5% but certainly not above 10%.
    • justme111
    • By justme111 10th Oct 17, 7:44 AM
    • 2,878 Posts
    • 2,764 Thanks
    justme111
    • #7
    • 10th Oct 17, 7:44 AM
    • #7
    • 10th Oct 17, 7:44 AM
    I would see it is a massive risk - putting almost all of life savings there. Of course apologies for an assumption if you have another three quarters of a million rattling in your coffers.
    • Bravepants
    • By Bravepants 10th Oct 17, 8:03 AM
    • 284 Posts
    • 332 Thanks
    Bravepants
    • #8
    • 10th Oct 17, 8:03 AM
    • #8
    • 10th Oct 17, 8:03 AM
    I wouldn't go more than 10% of my portfoilio in P2P. Big risk.
    • ctdctd
    • By ctdctd 10th Oct 17, 9:02 AM
    • 853 Posts
    • 672 Thanks
    ctdctd
    • #9
    • 10th Oct 17, 9:02 AM
    • #9
    • 10th Oct 17, 9:02 AM
    P2P lending is risky.
    If the lendee fails to repay, it can take ages for funds to be recovered and you may lose capital.
    If the platform goes bust, getting your funds back may be a lengthy and torturous process!

    I limit my exposure to less than 10% of portfolio and that is spread over half a dozen platforms.
    Do Money Saving sites make you buy more bargains - and spend more money?
    • dunstonh
    • By dunstonh 10th Oct 17, 9:55 AM
    • 89,919 Posts
    • 56,595 Thanks
    dunstonh
    Regulation is only just starting on P2P. So, standards of reporting and data availability is inconsistent and not up to a desirable level yet.

    P2P hasnt really been through any negative event. So, the scales of losses are an unknown. Defaults always get worse during periods of economic downturn. So, the expectation is that that you will get an easy ride in the good times but could be in for some pain during the bad times.
    Some P2P platforms have funds to help when there are defaults. Some have no funds at all allocated to that.

    and I would like to put in the rest (about £240K) but I'm not sure I understand the risks properly,
    That would be very high risk as nobody really knows the degree of risks that exist. You would be lacking diversification and taking a punt. You should have that sort of amount spread of the usual conventional areas.
    I am an Independent Financial Adviser (IFA). Comments are for discussion purposes only. They are not financial advice. Different people have different needs and what is right for one person may not be for another. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.
    • josie
    • By josie 19th Nov 17, 7:39 PM
    • 3,028 Posts
    • 17,703 Thanks
    josie
    I'm quite new to Funding Circle and just put £1k in to test the water - so far so good.

    I don't quite understand the bit about selling loans to other lenders. I'm looking to invest a bit more. Can I "buy" someone else's loan - is that a good way to do it, instead of just investing more directly myself please?

    Also, just confirming my assumption here is that you can't invest say £5k for 1 year or 2 years? You get what you're given in terms of the length of the loan, is that right? And you have to wait (or sell it) if you want your money out?

    Thanks in advance for any assistance.
    • bostonerimus
    • By bostonerimus 19th Nov 17, 7:49 PM
    • 1,226 Posts
    • 684 Thanks
    bostonerimus
    P2P is going to be as risky as any newish and lightly regulated high interest debt investment.....ie it's on the high end of the risk spectrum.
    Misanthrope in search of similar for mutual loathing
    • A_T
    • By A_T 19th Nov 17, 9:36 PM
    • 237 Posts
    • 121 Thanks
    A_T
    I would happily put 250K in Funding Circle - if I had £10 million invested/saved elsewhere.
    • Alexland
    • By Alexland 19th Nov 17, 9:46 PM
    • 766 Posts
    • 473 Thanks
    Alexland
    I don't think there are words strong enough on why you shouldn't put £240k into Funding Circle unless you are so rich it is a small proportion of you money you can afford to lose. Trust the advice above, it's a really bad idea.
    • kidmugsy
    • By kidmugsy 19th Nov 17, 10:16 PM
    • 9,898 Posts
    • 6,675 Thanks
    kidmugsy
    I'm disappointed that our friend jamesd isn't commenting on this: he's keen on P2P. He's not been dunstoned has he?
    Free the dunston one next time too.
    • aroominyork
    • By aroominyork 19th Nov 17, 10:47 PM
    • 300 Posts
    • 72 Thanks
    aroominyork
    key thing is to diversify across platforms as there is platform risk you have to consider.
    Originally posted by economic
    That is the point to understand. The risk is not of slightly higher defaults which make your estimated 7% return turn into 4%, or even that you lose a couple of % of your capital. That is no different from the stock markets going down a bit. The risk is if defaults are high, the platforms do not have the resources to chase them, no new investors come in, the platforms' profits dive and they go into liquidation. That is the deep end of this untested new territory.
    • economic
    • By economic 19th Nov 17, 11:05 PM
    • 2,134 Posts
    • 1,162 Thanks
    economic
    That is the point to understand. The risk is not of slightly higher defaults which make your estimated 7% return turn into 4%, or even that you lose a couple of % of your capital. That is no different from the stock markets going down a bit. The risk is if defaults are high, the platforms do not have the resources to chase them, no new investors come in, the platforms' profits dive and they go into liquidation. That is the deep end of this untested new territory.
    Originally posted by aroominyork
    exactly. the key risk imo is platform risk. how well are they run, capitalised, managed, stress tested etc. Thats why it is crucial to limit exposure to each platform. I personally have about 6-7% of my net worth in P2P (total 50k) and i never have more then 10k in each platform.
    • aroominyork
    • By aroominyork 20th Nov 17, 7:59 AM
    • 300 Posts
    • 72 Thanks
    aroominyork
    This has got me thinking more about platform risk. I started p2p investing last month with Ratesetter and this month added Funding Circle. I went for FC’s Balanced option (est. return 7.5%, risk bands A+ to E) instead of Conservative (est. return 4.8%, risk bands A+ and A) because I figured that if the platform defaults I am stuffed anyway so I might as well chase the higher returns; a higher than expected bad debt rate on Balanced is still likely to outperform the Conservative option.

    Naturally, if the platform folds the economy is likely to be going downhill so there will be a higher level of failures among companies in the Balanced option. But another angle now occurs to me. Are the Conservative companies more likely to have strong credit ratings they want to protect and so more likely to keep making their payments rather than thinking FC’s woes give them chance to take a payment holiday until someone knocks on their door asking for the arrears? If that is plausible, it adds to the case for investing in Conservative rather than Balanced.
    • msallen
    • By msallen 20th Nov 17, 8:30 AM
    • 595 Posts
    • 574 Thanks
    msallen
    I don't use Funding Circle, but I do use half a dozen other p2p platforms (all except one higher risk/return that FC). Has FC got FCA approval? If so then it must have a plan in place for the steady winding down of its loan book by a third party in the event of platform failure. I'm not for a minute claiming that this removes platform risk, but it does mean that its not quite the apocalyptic scenario painted here.

    Having said that, please don't take this as a blanket recommendation of p2p. I'm currently rebalancing, and removing cash from some platforms (hopefully) before the excrement hits the fan.

    As stated above you would be better going over to p2pindependentforum.com to discuss this topic rather than here.
    • justme111
    • By justme111 20th Nov 17, 8:37 AM
    • 2,878 Posts
    • 2,764 Thanks
    justme111
    I'm quite new to Funding Circle and just put £1k in to test the water - so far so good.

    I don't quite understand the bit about selling loans to other lenders. I'm looking to invest a bit more. Can I "buy" someone else's loan - is that a good way to do it, instead of just investing more directly myself please?

    Also, just confirming my assumption here is that you can't invest say £5k for 1 year or 2 years? You get what you're given in terms of the length of the loan, is that right? And you have to wait (or sell it) if you want your money out?

    Thanks in advance for any assistance.
    Originally posted by josie
    josie , you do not have control in what you buy or sell at FC. Your understanding of the term is correct .
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