Peer-to-peer lending sites: MSE guide discussion

Dewpoint

I've invested with Funding Circle (and Zopa) for a couple of years and found that with Funding Circle:
a. Their "Director guarantees" are not worth the paper their written on.
b. Their risk bands and credit assessment of companies they lend investor's money to is highly questionable.
c. Chasing bad debt on several investments has taken months (years) and has generally resulted in failure due to bankruptcy declarations, and so in my case has wiped out all interest profits.
d. They have a rather irritating restrictions on the minimum amount of money you can withdraw from your account (i.e.£20). So, if you have less than that in your account it sits idle until it grows to the £20 lower limit.

My recommendation would be ZOPA every time. Reasonable returns and so far no bad debt whatsoever.

rwgray

Thanks for sharing, Dewpoint.

On point (a) the problem seems to be that, in many cases, when the business fails, the director providing the guarantee is effectively already insolvent. The smaller the business, the more likely the boss has no get-out. The larger ther firm, I suspect, the greater the black hole in accounts when it falls. No-win!

On (b) if you study the rates of bad debt, I've commented previously that the highest risk band (was "C") has been more profitable because the lower ones produce disproportionately large losses. [I suspect in the longer term the recovery rate may creep higher for some of these, though? Just a guess.]

(c) Losses need to be allowable against the income tax that we pay on gains. Lobby your MP now!

Rich.x

FatherAbraham

rwgray wrote: »

I'm always relieved when a big long-term borrower pays up before he becomes insolvent!

On reflection, I didn't really understand that bit.

If you like your capital coming back secure to your account, then why lend it out in the first place at all?

Getting capital back early is painful when rates have dropped since the loan was taken out.

Warmest regards,
FA

rwgray

FatherAbraham wrote: »

On reflection, I didn't really understand that bit. If you like your capital coming back secure to your account, then why lend it out in the first place at all?

Ah, Father, I suspect you understand my sentiment well - but it doesn't make sense!

When fully educated in the ways of the market, one ought to be able to act with calculated caution rather than outright fear. But most of us never make Jedi. The element of doubt when choosing a firm to lend to, naturally translates into nervousness about the longer-term prospects of that business. For me, this frequently translates into favouring 3-yr terms over 5-yr terms, for instance. I feel more confident on the shorter timescale.

Better yet only to lend when I am more perfectly confident in the real prospects of the borrower. But I have to lend a LOT of small units to keep turning the cash over. And even when there are no obvious warning signs, reality comes along and bites us according to the principle of "no-one knows anything" about the future.

With bestest wishes, Rich.x

rwgray

easteregg wrote: »

Secured lending with a minimum of £1000. Is that short enough ? Google Thincats review for further information.

That's £1,000 per company invested in, so you need at least £50k to achieve 2% diversification. Thincats themselves admit that a sensible minimum figure is £47,500 for continuous reinvestment. So what do we know about making smaller loans through the secondary market, anyone?

See:

http://www.p2pmoney.co.uk/companies/thincats.htm

http://www.thincats.com/wa/1/101/4336-Lending-FAQs.html

Rich.x

reallydismayed

Hello,

I began to start an account with Zopa some time ago, and noticed discussion of interest rates paid for money in the holding account which had not yet been lent out to borrowers.

Now, I have completed my registration and the system appears to have changed. But I find the website's information and help confusing.

Currently, if you have money with Zopa that has not been lent out, do you get any interest at all?

Regards.

mikb

If you have been reading "old" information on Zopa (pre June this year) then it has all changed, big time. Get over to the Zopa Forum, and read some current stuff to get a flavour of what's happening.

To answer your question about holding accounts: No, they don't get any interest any more. If your money is not actively being lent at the current ridiculously low rates, then it's earning nothing.

The interest-on-holding account was from the old days when banks paid credit interest on the trustee account (with all lenders money in). As you can probably guess, the BoE rate hitting 0.5% ended that sort of thing, even on Zopa's (lender's) £millions.

rainsong

Has anyone got a current promo code for FundingCircle? You can get £50 cashback for a £1000 investment. Think they were in Aug/Sep editions of the FT, Economist etc.

beamerbaz

Ratesetter interest rates on 3, 4 and 5 year loans cannot be compared to savings accounts. On fixed rates at banks your savings are compounded until the term ends. Let's look at a 5 year loan with rate setter. Your loan is repaid monthly, so as the loan diminishes so do the returns. They do provide you with a spread sheet showing what returns will be over the 5 years. And, if you add up all the interest you receive over the full term (say you chose 5.5%) it's really more like 3.3% of the sum loaned. Yes, you can reinvest the returns to compound interest to 5.5%, but then each monthly return is invested in a NEW account, each for another 5 years. So when your first 5 year account matures, you now have 59 different accounts of which the bulk have several more years to run. You need to look at the Ratesetter long term loan options very carefully. However, their 1 year option is the same as any 1 year fixed term with a bank, you get the lump sum plus interest on maturity. Though the rate is lower it does beat what banks and BS's have to offer.

zoebel

why is it suddenly "earn 6%" whereas before it was "earn 8%". What has changed? Were we being mislead before? Also, why do you have to be debt free to invest?