Peer-to-peer lending sites: MSE guide discussion

grey_gym_sock

Thrugelmir wrote: »

Why would companies with solid asset backing be borrowing money at interest rates in excess of 12%. :think:

it might be an individual borrower, who is asset-rich but has irregular income.

it might be a company, who's doing something non-standard, e.g. property development.

there are various possible explanations.

though you are right that one should be asking questions and being suspicious. including about whether the asset-backing is as solid as it is claimed to be.

sometimes risks are mispriced. and i suspect it's more likely to happen in P2P lending, because it's a relatively new area. you always look a gift horse / free lunch in the mouth, but if it checks out OK, perhaps you should tuck in! or at least, risk going for a free side-salad with your lunch of more mainstream investments.

Thrugelmir

grey_gym_sock wrote: »

it might be an individual borrower, who is asset-rich but has irregular income.

it might be a company, who's doing something non-standard, e.g. property development.

there are various possible explanations.

though you are right that one should be asking questions and being suspicious. including about whether the asset-backing is as solid as it is claimed to be.

sometimes risks are mispriced. and i suspect it's more likely to happen in P2P lending, because it's a relatively new area. you always look a gift horse / free lunch in the mouth, but if it checks out OK, perhaps you should tuck in! or at least, risk going for a free side-salad with your lunch of more mainstream investments.

Having spent my entire working life in finance in various guises. I would be asking questions. Lots of them. Mind you there's no shortage of suckers that get drawn in to parting with their money.

DiggerUK

masonic wrote: »

.........We all have our own interpretation of risk.......Most of the platforms have not been tested in harsh economic conditions, which is of course a risk........

Risk starts when a third party is involved, and there is no 'nice man from the government ' going to be bailing out lenders here.

This thread encourages high risk taking, and MSE should make that risk clear..._

grey_gym_sock

DiggerUK wrote: »

Risk starts when a third party is involved

it's almost as if you were implying that using all your money to buy gold, and burying it under your patio, were risk-free, and not stark staring bonkers.

but of course you'd never imply that, would you?

risks warnings about P2P lending are a good thing. barely concealed agendas are not.

DiggerUK

grey_gym_sock wrote: »

.....risk warnings about P2P lending are a good thing. barely concealed agendas are not.

This is a thread about p2p, and is all I am prepared to talk about.
I suggest you do the same..._

Kendall80

Thrugelmir wrote: »

Why would companies with solid asset backing be borrowing money at interest rates in excess of 12%. :think:

I believe they are often short term loans ie <12 months. One of the P2P companies pays 1% a month to the lenders and charges 1.5% a month to the borrowers, pocketing the difference.


With that in mind your question might well be; Why would they borrow at 18%


Still, for the possibility of a steady 12% pa return, i'm willing to up the risk and test the water.

Thrugelmir

Kendall80 wrote: »

With that in mind your question might well be; Why would they borrow at 18%

Keep the business afloat as have exhausted other avenues of finance. Better to borrow other peoples money than risk ones own. By having to give personal guarantees over assets such as residential property. Majority of companies fail through cash flow problems rather than profitability.

masonic

DiggerUK wrote: »

This thread encourages high risk taking, and MSE should make that risk clear..._

We don't have MSE stomping all over threads about investing in equities (even those advocating going 100% equities), where an 80% loss potential is evident from historical data, nor those discussing high yield bonds, which are subject to comparable levels of risk to the investments being discussed here. These P2P platforms are not FSCS protected, but they are FCA regulated.

It seems one or two posters have made their minds up, are repeating themselves like broken records, repeating questions that have already been asked and answered, etc. I would suggest if those posters actually perceiving a high risk wanted to be helpful, they'd go and take a look at what is actually on offer and come back with concrete examples of these perceived risks, rather than make sweeping generalisations based on historical examples they imagine to be similar.

DiggerUK

Somebody at the Daily Mail is hacking this thread..._ :think:

http://www.dailymail.co.uk/money/saving/article-3262573/Hidden-dangers-peer-peer-lending-Sick-pathetic-rates-Fed-big-banks-Watch-high-tech-firms-money.html

rwgray

Thrugelmir wrote: »

Why would companies with solid asset backing be borrowing money at interest rates in excess of 12%.

A property developer could (a) walk away from a site leaving expensive security arrangements while all his carefully worked-out plans crumble away to nothing as the banks fall over themselves to avoid lending anything at all; or (b) get the money in a week from a p2p platform at 12% and get the whole development rolling forward knowing that in 12 months you can refinance this bridging loan as much as required - and/or sell on part of the development itself - and maybe be already selling accommodation units...

The security is based on the value of the whole development, which is why banks walk away while we rich fools rush greedily in.

It only goes wrong if the whole economy grinds to a halt so fast that no-one can pull any cash out of a fixed-term, 12-month loan before the borrower and his development become worthless. Which is a risk, yes.

Rich.x