Peer-to-peer lending sites: MSE guide discussion

jamesd

Ryan Futuristics, it's true that the unrecoverable loans can be deductible for capital gains tax purposes but to do anything with that requires having a capital gain in the first place and most people do not have taxable gains in excess of the annual allowance, so in practice it's not of value to most people.

Ryan_Futuristics wrote: »

The other thing of course is defaults aren't immediate - the 5% figure may involve a loan that's been 90% repaid first (as they're repaid monthly) ... So I assume simply subtracting the default rate from the income doesn't give you a proper total, and makes the issue look much worse than it is

You really should read the FC page that TCA linked you to: that 5% is after allowing for both the reduced amount at time of default and all recovery made after the default. It's the extra interest rate you'd need, ignoring tax effects, to cover the losses due to bad debt.

Ryan_Futuristics

I think I've got you - one problem with having an accountant is my tax knowledge is a bit vague

In my case, the only income I'm earning this tax year will be from investments (and unless Russia stages its comeback early, that shouldn't put me in the higher rate tax band), so including C- lending bands shouldn't be a problem

So from reading this again, from April these bad debts will go from being deductible against capital gains to deductible against income tax

https://www.fundingcircle.com/blog/2014/12/chancellor-introduces-new-bad-debt-relief-lending-funding-circle/

And it estimates it could improve returns by up to 25% (so presumably taking you from a worst case realised of around 5.5% to about 6.9%)

To me, either case still makes this appealing against the capital risk of bond funds and the platform risk of smaller P2P lenders ... But unticking higher-risk categories could certainly be a good idea if tax was likely to be a factor

jamesd

Yes, that change is interesting.

Also interesting is that four P2P providers have announced that they plan to offer SIPP-related products. That gets rid of another tax hurdle and since it's where a lot of my money is, also frees up a lot of that potential investable capital.

One of those places is also doing an invoice funding product. Interesting bit of diversification because the current two UK invoice funding P2P places aren't readily accessible due to things like £50k minimum investment level.

Some nice alternatives to bonds or commercial property.

boardgamer

I want to sign up for Funding Circle - if anyone wants to get a £50 cashback for "recommending" me, please send me a PM. (Note I will unashamedly prioritise those offering me an incentive - a slice of some of your cashback is fine, but I would also consider cases of wine, holidays in the Maldives, use of your Ferrari for a week, etc. :-)

agent69

Ryan_Futuristics wrote: »

I don't think we've quite cleared that one up ... What I'm reading in that link is that unrecoverable business loans can be classified as allowable capital loss, and therefore not subject to capital gains tax

Re: selling loans - if I have to sell an 8.8% A+ loan for 7%, that's absolutely fine by me

Re: worst case scenario - 1.7% from a C- loan would be a scenario in which they'd all defaulted without making any repayments (and it's still better than a savings account)


As for the platform risk, my question is: Who's going to do the chasing when the platform's down and there's a lot of money to collect?

It's never happened before, so it's an unknown ... The businesses are legally obliged to continue making repayments, but you're not going to get debt collectors chasing up half a million £8 loans ... Trust that the government has set up such a robust system it could never fail us? ... You're alone on that one

Lord give me strength.

I'm trying to help you correct some of your misconceptions on how FC works, but I think I'm fighting a losing battle:

Selling loans - If you could buy a £20 A+ loan part at 8.8% and sell at 7% you would be making a 1.8% profit (36p - happy days). But why would anyone buy your loan part at 7% when there are currently 20,000 A+ loan parts for sale on the secondary market at rates between 7.5 % and 11%. If you want to sell the 8.8% loan part you would have to mark it down (apply a negative mark up) by about 1.5% to make it attractive to buyers. This would result in you having to give somebody £20.30 to take the £20 loan part off your hands. Net result including the sales fee is a loss of 35p on your £20 investment.

The 1.7% - you say that this is a scenario in which they'd all defaulted without making any repayments...... no it isn't. It is a scenario in which the 5% default rate predicted by FC occurs and all the rest pay in full. You are correct that it is still comparable with interest rates in savings accounts, but of course it doesn't come with the £85k FSCS guarantee.

If the platform goes pop - I didn't say that your future repayments were guaranteed, I just said platforms were required to have procedures in place (you don't have to chase the borrower). When the first one goes pop we will see how good the procedures are.

Ryan_Futuristics

agent69 wrote: »

Lord give me strength.

I'm trying to help you correct some of your misconceptions on how FC works, but I think I'm fighting a losing battle:

Selling loans - If you could buy a £20 A+ loan part at 8.8% and sell at 7% you would be making a 1.8% profit (36p - happy days). But why would anyone buy your loan part at 7% when there are currently 20,000 A+ loan parts for sale on the secondary market at rates between 7.5 % and 11%. If you want to sell the 8.8% loan part you would have to mark it down (apply a negative mark up) by about 1.5% to make it attractive to buyers. This would result in you having to give somebody £20.30 to take the £20 loan part off your hands. Net result including the sales fee is a loss of 35p on your £20 investment.

The 1.7% - you say that this is a scenario in which they'd all defaulted without making any repayments...... no it isn't. It is a scenario in which the 5% default rate predicted by TC occurs and all the rest pay in full. You are correct that it is still comparable with interest rates in savings accounts, but of course it doesn't come with the £85k FSCS guarantee.

If the platform goes pop - I didn't say that your future repayments were guaranteed, I just said platforms were required to have procedures in place (you don't have to chase the borrower). When the first one goes pop we will see how good the procedures are.

You sound like you've been brainwashed by some P2P lending forum (presumably with some rather questionable motives) and you've clearly never had a Funding Circle account


1. Selling loans, the profit would depend entirely on how much had already been paid back ... You're clearly not au fait with the maths or how P2P lending works (or you've had these things explained to you by someone with a Geocities homepage called MoneyBeanstalk.net, who's convinced you to do something rather foolish)

2. Your 1.7% figure is not corroborated by anyone and if it weren't demonstrating a case in which 5% of loans defaulted before they'd paid you anything, how would you change the maths to show that? (Rhetorical question - that's what you've done)

3. What you're describing is what I'd call the risk of P2P lending ... How about: let's go with the most robust platforms, which the governments have £millions invested in, rather than set ourselves up for "we will see how good the procedures are" ...?

sthrax

boardgamer wrote: »

I want to sign up for Funding Circle - if anyone wants to get a £50 cashback for "recommending" me, please send me a PM. (Note I will unashamedly prioritise those offering me an incentive - a slice of some of your cashback is fine, but I would also consider cases of wine, holidays in the Maldives, use of your Ferrari for a week, etc. :-)

Are you still looking for a referrer?

agent69

Ryan_Futuristics wrote: »

You sound like you've been brainwashed by some P2P lending forum (presumably with some rather questionable motives) and you've clearly never had a Funding Circle account


1. Selling loans, the profit would depend entirely on how much had already been paid back ... You're clearly not au fait with the maths or how P2P lending works (or you've had these things explained to you by someone with a Geocities homepage called MoneyBeanstalk.net, who's convinced you to do something rather foolish)

2. Your 1.7% figure is not corroborated by anyone and if it weren't demonstrating a case in which 5% of loans defaulted before they'd paid you anything, how would you change the maths to show that? (Rhetorical question - that's what you've done)

3. What you're describing is what I'd call the risk of P2P lending ... How about: let's go with the most robust platforms, which the governments have £millions invested in, rather than set ourselves up for "we will see how good the procedures are" ...?

I see you're using the politicians response: if you don't like the facts then rubbish the person who supplied them.

Once again you are wrong with most of your statements. I've been an FC member for a couple of years, although I sold off about 80% of my holding nearly a year ago due to high default figures and interest falling rates.

I mainly use the independent P2P forum for independent advice (http://p2pindependentforum.com/). You may recall that a year or so ago there was an independent FC forum, that FC bought up and closed down (wonder why?). The independent forum is populated by people who moved over from the old FC forum. Separate sections for most of the current P2P / P2B platforms, and lots of impartial advice.

1) selling loans - I agree that one of us is not au fait with how the system works, but I suggest it's not me. If my previous calculation (buying at 8.8% and needing to offer at 10% to sell) is incorrect, would you care to provide a detailed calculation showing how you are going to achieve a sale without a loss. Regardless of whether you loan part is valued at £20 or 20p if you buy at 8.8% and sell at 10% you will lose money on the sale.

2) You can corroborate the 1.7% figure by doing the maths yourself. Although note that in post 233 Jamesd said that " agent69 is essentially correct". It's an extreme example and only applies to C- loans, but it does demonstrate the impact bad debts can have on the pound in your pocket.

3) The government have invested millions in several platforms. What make you think FC is the most robust?

I have tried to help you with some misconceptions that you have. Obviously I am fighting an uphill battle. Sorry for having wasted you time, just hope not too many new investors have followed your advice. It's probably best if I leave you to return to your day time job, which I assume is working in the PR department at Funding Circle.

In parting I would like to quote a famous saying from a member of the independent forum, which is pertinent to your post 221. "I love autobid on Funding Circle, provided it's somebody else using it"

rwgray

agent69 wrote: »

In parting I would like to quote a famous saying from a member of the independent forum, which is pertinent to your post 221. "I love autobid on Funding Circle, provided it's somebody else using it"

I've managed to track down my post from the end of 2012:

https://forums.moneysavingexpert.com/discussion/comment/58252637#Comment_58252637

Titled, "Do not use Autobid on Funding Circle", I stand by the advice that I'd formulated after just a matter of weeks on the platform. Not certain that I've been fastidious enough in enforcing it, though!

The bad debt estimates for FC will always be a form of, for want of a better expression, average guidance. You improve on those percentages by displaying better than average investor behaviour. The worrying thing is that many people will perform considerably worse than this. [Not half. Not nearly half, for various reasons, but many.]

The first step to improvement is not to use autobid. If you cannot do better unaided, then don't go there.

Rich.x

paulgul

First 2 admissions, I'm new to P2P lending and I haven't read this whole thread - I would be interested to hear from anyone who has dealt with Funding Secure.
They seem to be offering much higher rates than other lenders (I assume with higher risks) but also seem to operate in a different way in that you have to select your own investments from a given list.
Paul