Peer-to-peer lending sites: MSE guide discussion

Froggitt

SomeRandomGuy wrote: »

Hi everyone,
I've read through the p2p guide on MSE but I find this is still all a bit confusing.

The return rates seem almost too good to be true compared to what a savings account or bond earns (none of which even beat real inflation as far as I can tell). My understanding is that with p2p lending the risk is obviously losing all your money, but that seems quite rare from what I can work out?

So my question is this really - for someone with very modest savings is it worth dipping a toe in the p2p waters? Even if I only have say £1000 that I am willing to risk?

I also started with £1000, just to see how it went - Ratesetter. Then £2000 in Zopa. You can see I was risk averse, both of those having contingency funds, not the big bucks rates. I think its changed for new money, DYOR.

From memory, even if the contingency fund isn't enough to cover defaults, the loss is spread among all investors - so of say £100m lent, I find it inconceivable that they would get none of it back.

Some of the platforms paying say 10%, no contingency fund, and if that particular investment goes down, you're sunk.....I suspect those aren't for you.

jamesd

The places paying raw 12% or so that I usually describe as 10% after allowing for bad debt do secured lending. The security gets taken if there's trouble. So you have situations like these from three different places:

1. Car dealer failed, loan structured so cars owned by platform, some sold anyway. Some taken for sale by platform, directors to pay the rest rather than risk criminal prosecution.
2. Default on loans secured on containers, some covered by charge, others still owned by platform. Legal action that looks likely to result in taking and selling property of director in progress, buyers can also be pursued. A High Court freezing order blocked an attempt by director to sell the property.
3. Dispute blocked ongoing development project, platform stepped in with a view to complete the project. Not defaulted yet, may end up paying normally.

Sorry, it's not wise to identify these more specifically during legal action but full or near full recovery looks likely. Each case is the first default suffered by lenders using the platform concerned.

Diversify across many loans and several platforms and it's unlikely that losses to defaults will even match the interest paid.

For unsecured lending largely to consumers at Zopa without protection fund after nine years my defaults are well below my interest received, making the lending thoroughly profitable, though the lowest rate I lent at was about 8% almost five years ago.

The normal lending without protection funds just works differently from the few that have them, with security and/or interest rate margin intended to cover losses instead of a protection fund getting an interest rate cut.

Ratesetter still has a protection fund. Zopa is ending theirs and going back to the no protection fund approach they used when I was lending there.

dekkard

SomeRandomGuy wrote: »

Hi everyone,
I've read through the p2p guide on MSE but I find this is still all a bit confusing.

The return rates seem almost too good to be true compared to what a savings account or bond earns (none of which even beat real inflation as far as I can tell). My understanding is that with p2p lending the risk is obviously losing all your money, but that seems quite rare from what I can work out?

So my question is this really - for someone with very modest savings is it worth dipping a toe in the p2p waters? Even if I only have say £1000 that I am willing to risk?

A forum that may help you to find out more about P2P:

http://p2pindependentforum.com/

jamesd

Update: This loan filled at 4PM on Monday and the cashback offer is not available for any new investments into this loan. It's now available on the secondary market if you want the 12% interest rate.

There's a potentially interesting loan at Collateral that I've put around £50,000 into. The big attraction is cashback on your initial investment and you can sell as soon as the loan is full and showing as available for secondary market buys. With a bit of a delay because you do have to wait for a buyer. With the start of a month coming, meaning lots of interest payments, and lots of money from the AE loans at MoneyThing due to repay on Monday that bodes well for this filling soon and some half-decent supply of buyers. Which means you might make anything from 0.25% to 4% cashback in a few days or weeks, plus the 12% interest on the loan while you hold it, though parts for sale don't have interest paid.

Here are the cashback rates:

For Investments of £0.00 - £4,999.99 – 0.25% Cashback
For Investments of £5,000.00 - £9,999.99 – 0.5% Cashback
For Investments of £10,000.00 - £24,999.99 – 1.0% Cashback
For Investments of £25,000.00 - £49,999.99 – 2.0% Cashback
For Investments of £50,000.00 - £99,999.99 – 3.0% Cashback
For Investments of £100,000.00 + – 4.0% Cashback

You get paid the 12% interest from the time you invest until you put some up for sale, nothing for that portion.

The loan is BL00046 Darwen, Blackburn. Currently £194k of the £1.05 million still available. My guess is that it'll fill on Monday so if the cashback is interesting to you I suggest trying to do it before or on Monday. It's OK to invest several chunks at different times, you get the cashback for the total amount invested by you when it first becomes full, so two buys of £2,500 each gets you 0.5% cashback.

The loan itself isn't anything special, it's the tax free cashback that makes this really interesting.

Declaration of interest: I'm already making 12% on my chunk of this but I'll get a faster turnaround on the cashback if it finishes filling faster. Not a big deal since I expect it to fill on Monday anyway, but worth being explicit just in case it wasn't already obvious.

Update 5PM Sunday: £156k left
Update 3AM Monday: £126k left
Update 9AM Monday: £97k left

TheShape

New loan notification at MoneyThing. Looks timed to soak up some of the available capital from the AE loans repaying.

I've lent very little against the property loans at Collateral mostly because I've been investing in the very liquid Jewellery loans (as well as the now rather illiquid car loans). Strictly 0.25% cashback for me if i do invest.

jamesd

Yup. I decided that I'm happy to take £1,500+ of their money for lending for a little while... Though I'll take some 12-14% property loans at Collateral just for platform diversification.

Next planned stop for much of this money for me is the Ablrate ISA, now expected on Wednesday for new money and a week later for transfers.

bigadaj

jamesd wrote: »

There's a potentially interesting loan at Collateral that I've put around £50,000 into. The big attraction is cashback on your initial investment and you can sell as soon as the loan is full and showing as available for secondary market buys. With a bit of a delay because you do have to wait for a buyer. With the start of a month coming, meaning lots of interest payments, and lots of money from the AE loans at MoneyThing due to repay on Monday that bodes well for this filling soon and some half-decent supply of buyers. Which means you might make anything from 0.25% to 4% cashback in a few days or weeks, plus the 12% interest on the loan while you hold it, though parts for sale don't have interest paid.

Here are the cashback rates:

For Investments of £0.00 - £4,999.99 – 0.25% Cashback
For Investments of £5,000.00 - £9,999.99 – 0.5% Cashback
For Investments of £10,000.00 - £24,999.99 – 1.0% Cashback
For Investments of £25,000.00 - £49,999.99 – 2.0% Cashback
For Investments of £50,000.00 - £99,999.99 – 3.0% Cashback
For Investments of £100,000.00 + – 4.0% Cashback

You get paid the 12% interest from the time you invest until you put some up for sale, nothing for that portion.

The loan is BL00046 Darwen, Blackburn. Currently £194k of the £1.05 million still available. My guess is that it'll fill on Monday so if the cashback is interesting to you I suggest trying to do it before or on Monday. It's OK to invest several chunks at different times, you get the cashback for the total amount invested by you when it first becomes full, so two buys of £2,500 each gets you 0.5% cashback.

The loan itself isn't anything special, it's the tax free cashback that makes this really interesting.

Declaration of interest: I'm already making 12% on my chunk of this but I'll get a faster turnaround on the cashback if it finishes filling faster. Not a big deal since I expect it to fill on Monday anyway, but worth being explicit just in case it wasn't already obvious.

I don't think there's too much wrong with the loan, but it has had to be rent opiated at a lower ltv after a poor take up.

Nothing to indicate that this is more risky than many other p2p loans but probably worth noting in the history of teh fund raising.

takesyourchances

Just opened the Ablrate IFISA there, all very easy and easy to switch between accounts and great to see

I guess the best way on the standard account is to now withdraw interest payments and place them back into the IFISA account, so I am looking forward to new loans coming up for the IFISA and will buy into one on the SM to get the ISA started

Bazofts_Revenge

Just in case people subscribed to this thread didn't realise there is a new loan on ABLrate that went live at 4pm. Already 78% subscribed.

Empor

I've just opened an IFISA with ABLrate as they seem sound, but I don't like their user inferface at all. The SM is way more complicated to use than moneything.