Peer-to-peer lending sites: MSE guide discussion

mikehero

I have been investing in Ratesetter (since Mar 2016) and Zopa (since Aug 2015).

As far as I am aware, all my defaulted loans in Ratesetter have been reimbursed by the Provision Fund.  Zopa however is quite a different story and getting worse.  For the last three tax years, the amount of my loans that were written off as bad debt was £40, £899 and now £2412.  The amount of interest I received in each of the three years was approximately constant at £5000.  So the bad debts written off in this last tax year was nearly 50% of the interest received.  I did complain to Zopa last year, but they just said "that's the way it works".

athomegrind

Apparently, lendingclub is supposed to be one of the best and most established peer-to-peer lending platforms. Although, it's not wise to invest all your capital into one place. Diversifying your money across many different investments (high-interest savings accounts, bonds, REITs) is the smart thing to do, in my opinion

charliewhatsit

Why would anyone want to invest in Peer to Peer in the current situation? As for bonds, surely National Savings is the best place currently.  No risk to Capital.  REITS? they will suffer from valuation downgrades and income impairment.  High interest savings accounts?  What measly high interest as well as tying up capital?  No.  Park your money in National Savings and await opportunities.  This is not the time to tie up your spare capital.  There are no smart investments for cash currently. Also the stock market is irrational.  In 1974/5 it fell 70% and this time things are much worse.  It's currently a trap for the unwary.  Watch and wait is the motto of this investor.  I've been investing for 30years.

Nardge

mikehero said:

For the last three tax years, the amount of my loans that were written off as bad debt was £40, £899 and now £2412.  The amount of interest I received in each of the three years was approximately constant at £5000.  So the bad debts written off in this last tax year was nearly 50% of the interest received.  I did complain to Zopa last year, but they just said "that's the way it works".

I'm not sure what the complaint was for. There will be bad debts, though the interest you received appears to have done much more than compensate the loss...

Albermarle

I did complain to Zopa last year, but they just said "that's the way it works".

Interest minus bad debts plus any recoveries = return 

That's how p2P works so not sure what else you expected Zopa to say ?

MarkFromCornwall

masonic said:

You can set your rate at 8%, but you'll never get any of your money lent out at that rate, so won't earn any interest. People only do this when they are trying to escape Ratesetter!

Sometimes one get's lucky on RS.  I got a match at 9.6% on 24th April!

athomegrind

charliewhatsit said:

Why would anyone want to invest in Peer to Peer in the current situation? As for bonds, surely National Savings is the best place currently.  No risk to Capital.  REITS? they will suffer from valuation downgrades and income impairment.  High interest savings accounts?  What measly high interest as well as tying up capital?  No.  Park your money in National Savings and await opportunities.  This is not the time to tie up your spare capital.  There are no smart investments for cash currently. Also the stock market is irrational.  In 1974/5 it fell 70% and this time things are much worse.  It's currently a trap for the unwary.  Watch and wait is the motto of this investor.  I've been investing for 30years.

You're right, Charlie. It's hard to know what to invest in right now during the pandemic. But, by that logic, why would anyone invest in ANY security in the current situation (let alone peer-to-peer lending)?

I was only making the point that people should perhaps choose to diversify their investments in order to spread risk and hopefully save money. In terms of bonds, government bonds seem to be the most stable. Clearly, REITs can go down in value but at least they offer dividend payments.

At the end of the day, nobody can truly predict what the markets are going to do in the future. Maybe we're better off parking money in a savings accounts even if the returns are measly. Surely, that's better than doing nothing?

I can understand not wanting to tie up your money, to be fair. You sound like you have a lot of experience. I always keep a rainy day emergency fund, just in case.

Trying to time the markets is a tricky business. We might be waiting for a bottom that might never come (or has already happened). Only time will tell 

charliewhatsit

There is a leader in today's FT "Markets are out of step with economic reality" which just about sums up my feelings.  There is absolutely nothing wrong in spreading your cash investments, but there is nothing out there to profitably put your money into.  You cannot time the markets.  Absolutely correct, although I personally was lucky to call the bottom in 2009.  However, this situation we find ourselves in is unique and I am personally of the opinion that markets  will go much lower.  If I am wrong, then I will recover my current losses one day.  If I am right then the opportunity to profit  with new money, is there for me.  Meanwhile investing cash profitably is a massive problem.  So I prefer the safety of National Savings for the time being.  Unlike Govt bonds, the capital is not at risk.  i used to invest in Zopa, Ratesetter and Funding Circle but pulled out of Ratesetter and Zopa a couple of years back as well  Funding Circle.  i still have a few bad loans with Funding Circle and they keep writing to me to incentive me to invest;  but my bad loans are all with A rated companies so I believe the due diligence on borrowers is flawed.  I am keeping well clear, although the idea of helping small business is attractive.

masonic

charliewhatsit said:

So I prefer the safety of National Savings for the time being.  Unlike Govt bonds, the capital is not at risk.

Unfortunately, if you believe HM Treasury could default on its bonds, then you must necessarily believe National Savings, which is also backed by HM Treasury, could default on savers' cash deposits. However, in reality HM Treasury can print money at will, so will always meet its obligations to repay every £ it owes - that pound may just have less spending power than you'd hoped. So inflation is the real risk to your capital in both types of product.

athomegrind

charliewhatsit said:

There is a leader in today's FT "Markets are out of step with economic reality" which just about sums up my feelings.  There is absolutely nothing wrong in spreading your cash investments, but there is nothing out there to profitably put your money into.  You cannot time the markets.  Absolutely correct, although I personally was lucky to call the bottom in 2009.  However, this situation we find ourselves in is unique and I am personally of the opinion that markets  will go much lower.  If I am wrong, then I will recover my current losses one day.  If I am right then the opportunity to profit  with new money, is there for me.  Meanwhile investing cash profitably is a massive problem.  So I prefer the safety of National Savings for the time being.  Unlike Govt bonds, the capital is not at risk.  i used to invest in Zopa, Ratesetter and Funding Circle but pulled out of Ratesetter and Zopa a couple of years back as well  Funding Circle.  i still have a few bad loans with Funding Circle and they keep writing to me to incentive me to invest;  but my bad loans are all with A rated companies so I believe the due diligence on borrowers is flawed.  I am keeping well clear, although the idea of helping small business is attractive.

Yes, I don't think the markets have reached their bottom yet either. I'm going to wait a little longer before buying any more shares. I'll definitely be keeping a close eye on the S&P 500.