Peer-to-peer lending sites: MSE guide discussion

agent69

Ryan_Futuristics wrote: »

Roughly it seems RateSetter offer 5.9% over 5 years, while Funding Circle are about 6.9%

That's after fees and bad debt - my current return with Funding Circle is about 12%, my averaged return should be about 10.3% ...

I use Funding Circle's Autobid feature, lending no more than £20 to any company ... You can also set your lending rates, which just affects lending speed ... I offer 8.8% on A+ loans (very reliable) and 14.3% or more on riskier loans ... I set A+ rates more competitively than C-, so I've not got many risky firms I'm lending to, but when I do I get a very high return

You could opt just to lend to A+ companies, and you could lend to them very quickly at 7%, or quite slowly at 9% ... I figured when loans are repaid over such long periods, going a bit slower and higher probably pays off

I

WOW such dangerous advice.

What you don't mention is the effect that tax has (which is currently deducted before losses), particularly for a higher rate payer. If you invest in Ratesetter there are no losses so no problem. If you invest in FC (particularly on higher risks loans) the effect of the losses is to wipe out most of your profit. For example if you buy a C- loan at 13%, after tax, fees, bad debt and losses you end up with 1.7%. With Ratesetter you would get double that.

If you use FC never use autobid. It just picks up all the dross that nobody else wants. And why set autobid at 8.8% for A+ loans when you can easily pick them up for between 10 and 11% manually.

Set auto bid for 7%? you must be joking. And why would you want unsecured lending on FC at 11% when you can get the same rate on secured loans elsewhere?

agent69

transparent_opacity wrote: »

and I thought it was worth coming back to mention www.lovefruitful.com. There's a 6% rate instant access, so no tie-in or penalty for withdrawal. I got the invite to sign up today and it looks easy to use.

Wouldn't touch them with a very long barge pole.

Ryan_Futuristics

agent69 wrote: »

WOW such dangerous advice.

What you don't mention is the effect that tax has (which is currently deducted before losses), particularly for a higher rate payer. If you invest in Ratesetter there are no losses so no problem. If you invest in FC (particularly on higher risks loans) the effect of the losses is to wipe out most of your profit. For example if you buy a C- loan at 13%, after tax, fees, bad debt and losses you end up with 1.7%. With Ratesetter you would get double that.

If you use FC never use autobid. It just picks up all the dross that nobody else wants. And why set autobid at 8.8% for A+ loans when you can easily pick them up for between 10 and 11% manually.

Set auto bid for 7%? you must be joking. And why would you want unsecured lending on FC at 11% when you can get the same rate on secured loans elsewhere?

Common misconception - because you're only lending to businesses on Funding Circle, you're not actually liable to pay tax on bad debt ... There's information on the site

And all very well picking manually, but I think diversification is still your safest bet, and if you've got £10k+ invested, that's 500 loans at £20/each you've got to find, review and approve ... Say you pick 1 in 5? You're going to browse 2,500 small businesses just to invest £10k?

But out of interest where are you getting 11% secured lending, because I'm open to ideas - but it's principally being able to spread risk which attracts me to P2P lending as a bond fund replacement

rwgray

Ryan_Futuristics wrote: »

Common misconception - because you're only lending to businesses on Funding Circle, you're not actually liable to pay tax on bad debt...

I've explained previously that the present tax system victimises most small investors due to a mismatch between the INCOME TAX liable on ALL profits and the CAPITAL GAINS TAX recoverable on bad debts. Most of us do not habitually pay capital gains tax and therefore recover nothing on the bad debts (other than actual debt recoveries, of course!).

This is changing. I can't claim all the credit for having explained the problem to my local MP and subsequently HM Treasury, but the Government have just announced plans to fix this shortly... sorry I can't find the link just now!

Rich.x

scarymary_2

user feedback
I 'invested' £1,000 in Zopa and £1,000 in Funding Circle.
Everytime you take money out, they charge a fee.

When a large percentage of my 'borrowers' defaulted, I decided I didn't want to use this 'system' anymore, then the nightmare started.

If your loans are defaulted, you can't get your money back....you have to wait, I have no idea how long for.

With Funding Circle the same thing applies.

You get charged for this and that and I've now ended up with less than I started.
If you're not into reading lots of bits and bobs, if you find it hard to understand it all, I really don't advise small investors to use it.
It was far too complicated for me, even though I set my account/s to be auto-bidding...
I would have been better keeping my money under the bed.
There is no guarantee that your lending will go to the right people, you have no way of knowing who's who.
I can't get the last few pounds out of my account and I'm now stuck with two accounts, with my last few pounds in, that I can't access.
Funding Circle told me it was 'unfortunate' that I'd had such a large percentage of my loans default....basically bad luck there pal...I can't close the accounts, and I've emailed them both again today asking for them to be closed.
With Zopa you can't transfer out anything less than £20
I'd rather lose the last £40 than be bothered with the whole thing anymore, a complete headache from start to finish...

Ryan_Futuristics

rwgray wrote: »

I've explained previously that the present tax system victimises most small investors due to a mismatch between the INCOME TAX liable on ALL profits and the CAPITAL GAINS TAX recoverable on bad debts. Most of us do not habitually pay capital gains tax and therefore recover nothing on the bad debts (other than actual debt recoveries, of course!).

This is changing. I can't claim all the credit for having explained the problem to my local MP and subsequently HM Treasury, but the Government have just announced plans to fix this shortly... sorry I can't find the link just now!

Rich.x

Thanks for clarifying - and that's great work btw!

scarymary wrote: »

user feedback
I 'invested' £1,000 in Zopa and £1,000 in Funding Circle.
Everytime you take money out, they charge a fee.

When a large percentage of my 'borrowers' defaulted, I decided I didn't want to use this 'system' anymore, then the nightmare started.

If your loans are defaulted, you can't get your money back....you have to wait, I have no idea how long for.

With Funding Circle the same thing applies.

You get charged for this and that and I've now ended up with less than I started.
If you're not into reading lots of bits and bobs, if you find it hard to understand it all, I really don't advise small investors to use it.
It was far too complicated for me, even though I set my account/s to be auto-bidding...
I would have been better keeping my money under the bed.
There is no guarantee that your lending will go to the right people, you have no way of knowing who's who.
I can't get the last few pounds out of my account and I'm now stuck with two accounts, with my last few pounds in, that I can't access.
Funding Circle told me it was 'unfortunate' that I'd had such a large percentage of my loans default....basically bad luck there pal...I can't close the accounts, and I've emailed them both again today asking for them to be closed.
With Zopa you can't transfer out anything less than £20
I'd rather lose the last £40 than be bothered with the whole thing anymore, a complete headache from start to finish...

I think the problem is you're trying to use them like instant access savings accounts ... P2P lending is really a long-term investment

You also need to have £2,000 in Funding Circle to lend to the recommended minimum 100 different businesses - and the longer you remain invested, the more the ups and downs balance out and you're likely to get the average return

You should have a bank account too ... Think of investments as capital you're unlikely to need to access any time soon

agent69

Ryan_Futuristics wrote: »

Common misconception - because you're only lending to businesses on Funding Circle, you're not actually liable to pay tax on bad debt ... There's information on the site

And all very well picking manually, but I think diversification is still your safest bet, and if you've got £10k+ invested, that's 500 loans at £20/each you've got to find, review and approve ... Say you pick 1 in 5? You're going to browse 2,500 small businesses just to invest £10k?

But out of interest where are you getting 11% secured lending, because I'm open to ideas - but it's principally being able to spread risk which attracts me to P2P lending as a bond fund replacement

It's a matter of fact that you can't currently offset bad debt against tax. As an example from my earlier post, 13% C- loan equates to 12% after the fee. Deduct 40% tax takes you down to 7.2% and then deduct the projected 5.5% default rate and you end up with 1.7% cash in your pocket. FC never mention rates after tax because (for a higher rate people) it has such a dramatic effect on the overall return.

Most people don't have £10k+ to invest. If you do then it's best to take your time and get the best deals, rather than grab the first bit of dross that gets offered up (following the introduction of whole loans there is more dross on offer to the rank and file).

If you want an impartial view of FC then look on the independent P2P forum. Best not to mention autobid as it gets people a bit hot under the collar. If you are so desperate that the money needs lending today then you can safely set autobid at 10% for A+ loans. Alternatively buy on the secondary market and you can get significantly more than the 8.8% you have autobid set at.

If you want to diversify, look at the options on the P2P forum.Plenty of chances for 11%, many with asset security (something that went out of fashion on FC a long time ago).

jamesd

Ryan_Futuristics wrote: »

But out of interest where are you getting 11% secured lending

Ablrate is typically offering 10-12%, it seems, for loans secured on physical assets like aircraft and plant. There are other good options out there, the P2P Independent Forum has lots more on this subject and if you're taking P2P seriously you should visit the place and learn more rather than just using the best known names.

jamesd

For an illustration of income tax effects, consider Bondora, which among other things offers the option to invest in loans it grades as F and for which it gives an expected return of 19.22% based on 40.46% interest rate and 21.24% expected loss. For a 40% tax payer the 40.46% interest rate becomes 24.27% and after expected loss the anticipated return is just 3.04%. Here's a table showing the main range of their lending offers:

Implied claimed rate	Real rate		
Rating	interest loss	return	20% tax	40% tax	45% tax	20% tax	40% tax	45% tax
AA	14.52	1.55	12.97	10.38	7.78	7.13	10.07	7.16	6.44
A	16.24	2.46	13.78	11.02	8.27	7.58	10.53	7.28	6.47
B	18.21	4.46	13.75	11	8.25	7.56	10.11	6.47	5.56
C	21.97	7.33	14.64	11.71	8.78	8.05	10.25	5.85	4.75
D	26.39	10.82	15.56	12.45	9.34	8.56	10.29	5.01	3.69
E	32.33	15.2	17.14	13.71	10.28	9.43	10.66	4.2	2.58
F	40.46	21.24	19.22	15.38	11.53	10.57	11.13	3.04	1.01

Implied claimed rate is from deducting bad debt then income tax. Real rate is calculated correctly, deducting income tax then bad debt. By "correctly" I don't really mean correctly but just calculating losses as they do, I don't think their calculation is valid for other reasons.

Ryan_Futuristics

agent69 wrote: »

It's a matter of fact that you can't currently offset bad debt against tax. As an example from my earlier post, 13% C- loan equates to 12% after the fee. Deduct 40% tax takes you down to 7.2% and then deduct the projected 5.5% default rate and you end up with 1.7% cash in your pocket. FC never mention rates after tax because (for a higher rate people) it has such a dramatic effect on the overall return.

Most people don't have £10k+ to invest. If you do then it's best to take your time and get the best deals, rather than grab the first bit of dross that gets offered up (following the introduction of whole loans there is more dross on offer to the rank and file).

If you want an impartial view of FC then look on the independent P2P forum. Best not to mention autobid as it gets people a bit hot under the collar. If you are so desperate that the money needs lending today then you can safely set autobid at 10% for A+ loans. Alternatively buy on the secondary market and you can get significantly more than the 8.8% you have autobid set at.

If you want to diversify, look at the options on the P2P forum.Plenty of chances for 11%, many with asset security (something that went out of fashion on FC a long time ago).

You're doing your maths in a silly order ... It'd be the 13% rate minus 1% fee and 5% default rate = 7%

THEN there's the higher-rate tax, leaving you with 4.2%

You see the problem of deducting tax first is you halve your income *then* start taking off fixed deductions?


As of April the bad debt tax is going on income tax rather than capital gains ... So that simplifies that one (at the moment you can claim it back if it's business lending)
https://www.fundingcircle.com/blog/2014/12/chancellor-introduces-new-bad-debt-relief-lending-funding-circle/

And 10% Autobid for A+ loans is (from my experience) very slow


As for your impartial P2P forum - you don't seem to know much about how Funding Circle works (or how to calculate a return), so I'd perhaps question the experience and motives of the people you're listening to