Peer-to-peer lending sites: MSE guide discussion

jamesd

Can take a while to reinvest but it doesn't have to. I quite like the convenience of some of the MoneyThing loans that have a check box for automatic renewal every six months. A nice blend of decent liquidity even if you can't sell with convenience so you don't have to pay much attention.

Still, it does take some work to pick what to invest in unless you're willing to just trust the platform (the Zopa and RateSetter model). And of course for those two you're probably not getting so close to the maximum available returns. Good on the low hassle side, though.

Still, I don't think the amount of work required to invest amounts in the hundreds of thousands of Pounds and keep it reinvested is excessive, in general.

jnm21

Froggitt wrote: »

Your reinvestment order O710558255025 for £17.90 at 2.1% in the 3 Year market within your Everyday account has been matched

:eek: Wonder if I can set my reinvestment option to Zopa.

I take it you second my call for a newsletter warning? I can't believe that folks would knowingly accept 2% for a capital at risk investment.

Suggest you sell out - should be free as rates are dropping fast!

jnm21

JohnRo wrote: »

I wonder how many people investing at Ratesetter in the 5 year market just look at the headline rate and think that's what they'll end up getting back.

It'd be interesting to have a survey of lenders and see how many realise the headline rate is only applicable while the repayments are being reinvested back into the same market at the same rate of return and that any reinvestments at lower rates will dilute the original expected return.

Also how many realise the loan amortisation effect on the rate of return over the 5 year withdrawal phase won't be anything even close to the headline return.

I would not think that I am the foolish investor that you seem to think ratesetter prays on, but even I missed a pitfall. I know that to get 6% I must reinvest the interest & capital, but that is just not possible. Say you put in £1000 & get £20 in your first payment. That £20 takes a week to match at the same rate. Next month you get another £20 which matches after 3 days, then a week later you get the first payment from the first £20 of just 40p - they will not let you place less than £10, so as the 'income' model fractures your capital into more & more contracts, with more & more repayment dates, you will have more & more sitting earning nothing for longer each month. I would love to see £100 placed in the 5 year at 6% with a reinvest rate of 6% - after a year, how much would it be worth? £105? Less?

They really need to illustrate this better (I read everything they have & either it was not clear or not there)! I think I may change tact to the rolling or 1 year & get out once my £100 bonus comes in.

Shame, as I enjoyed the thrill of selecting a rate & waiting to see if I pitched my offer just right.

Anyone any experience of setting a low 'my rate' - say 5.5% on the 5 year - would it match it at that rate exactly or the highest available if higher?

bowlhead99

jamesd wrote: »

Still, I don't think the amount of work required to invest amounts in the hundreds of thousands of Pounds and keep it reinvested is excessive, in general.

There's significant economies of scale in investing or reinvesting hundreds of thousands of pounds though.

You've allocated a very large proportion of what to some would be a very large amount of wealth, to the sector. Those of us who don't have the level of wealth with which we could pretty much retire - and/or don't have the balls to invest such a large proportion of it with so much gusto into the asset class - can't hope for the same level of returns for the same relative effort per pound invested.

For example, lets arbitrarily say you need 100 loans across five platforms to be comfortable with the level of diversification and that adding a 101st will not give much extra benefit so you stop there.

If you're doing that with 200k, it's £2k a loan. Across a broad gamut of opportunties, let's say each loan might produce £150 interest over the next couple of years after writeoffs. If we assume you could have got 1.5% risk free (£60 over a couple of years) and you value your time at £20 an hour, you can effectively spend an entire hour researching an opportunity and another hour rejecting five opportunities for every one you actually go with, getting paid £40 for your trouble, and your eventual £150 profit will still represent £50 of 'reward' from the good loan on top of the £60 risk free rate and the £40 amount at which you valued your time. Sounds pretty fine.

However, that's you. With me, I might only have £2000 not £200,000. I can't do £2000 a loan, more like £20. The two year return is not £150 but £1.50. I can't spend two hours researching and rejecting opportunities for £1.50, let alone the fact that at the lower level of investing I have a much higher 'risk free rate' to overcome in the first place because my savings are more easily absorbed by the high street banks promotional deals and offers.

So when people wonder why the high rates even exist, how you can trust them without it being some sort of con, etc... a lot of the reason is that there is a big barrier to entry;. Setting aside differences in mental acuity for a moment, the layman simply does not have the requisite time on his hands to do what Jamesd does. And the big credit / bond fund managers don't look at £2000 loans because they are too small to bother with. So there are likely some rich pickings in the middle which is a structural issue in the market, to be exploited.

Trying to DIY £2k across 100 loan opportunities is a waste of time though. It's like, I might like Neil Woodford as a manager, and his fund might do well at its current size of £9bn. But if I ask him to give up the day job and come and manage a £90k portfolio it will be horrendously inefficient because his 6-figure salary is over 100% management fees per year. The infrastructure and management fees of a £9 billion fund are pretty high, so fees for investment research get lost in the roundings. But if I am self researching p2p loans I can't ignore the time cost of deciding which ones I want.

jamesd

bowlhead99 wrote: »

You've allocated a very large proportion of what to some would be a very large amount of wealth, to the sector. Those of us who don't have the level of wealth with which we could pretty much retire - and/or don't have the balls to invest such a large proportion of it with so much gusto into the asset class - can't hope for the same level of returns for the same relative effort per pound invested.

Yes, my situation after ten years of saving and investing over 60% of my income is very different from the approximately 10k net worth I had when I started posting here back in 2006. Gives me choices today that I didn't sensibly have available to me then. Until 2008 I was essentially just using savings, until after the market drop early that year when I switched to mostly investing. Since then I've been helped greatly by being in what has essentially been one long bull market for equities as well as my own choices that have worked out well for those conditions.

bowlhead99 wrote: »

With me, I might only have £2000 not £200,000. I can't do £2000 a loan, more like £20. The two year return is not £150 but £1.50. I can't spend two hours researching and rejecting opportunities for £1.50, let alone the fact that at the lower level of investing I have a much higher 'risk free rate' to overcome in the first place because my savings are more easily absorbed by the high street banks promotional deals and offers.

Yes, I agree that there are economies of scale involved. It's one reason why I have historically preferred to lend on five year loans, less work as well as the interest rate tie-in for the borrower (aside from early repayment risk).

bowlhead99 wrote: »

And the big credit / bond fund managers don't look at £2000 loans because they are too small to bother with. So there are likely some rich pickings in the middle which is a structural issue in the market, to be exploited.

Right on that aspect as well, though some actually are getting interested now having noticed the potential and that total volume available is now starting to get worth thinking about.

bowlhead99 wrote: »

Trying to DIY £2k across 100 loan opportunities is a waste of time though.

In that situation I'd be tempted to use SavingStream prefunding combined with RateSetter and Zopa. But also to ask over in the P2P forum to see which others can automate it.

Fabio79

Hi all,

I'm thinking of investing funding circle as we have a disposable 16K which i want to invest to maximise the interest available.

Does anyone have any advice? I was thinking of using the 'Autobid' option and investing £20-£50 for each loan.

Would that work?

asc1991

Hey folks - I have a friend who works in Germany doing a study into P2P as it's starting to kick off their. She would love perspectives of P2P in the UK and I would be very grateful if you would be willing to answer the following questions - thank you!

1. Which platform(s) do you use?

2. What is their benefit?

3. How large is the trust you place in their assessment of lenders creditworthiness? Do you know how they assess and categorise the risk in detail?

4. Have you ever given a loan that was defaulted, i. e. you did not get your money back? If yes, how much was that?

5. How do you diversify risk? Is it required by the platform (i.e. Zopa only lets you invest max 10GBP per loan)?

6. What is the max and min amount you usually invest?

7. How is the usability of the platform(s)? Self-explanatory / complicated / easy to understand / hard to understand…?

8. Would you recommend investing into P2P Lending? Why?

9. Have you used/ are you using other investment options? Is there anything you prefer over P2P?

10. What are the min/ max returns/ interest rates you receive?

11. What is your perception of risk? Do you invest in loan with a higher risk/ low creditworthiness?

12. In general, why do you think P2P lending is used so much in the UK? (It is the first market for P2P and the largest by far in Europe with a P2P volume per capita of 38€ (vs GER with 0.82€ vol/capita) . Globally only the US (80€ P2P vol/ capita) and China are larger (62€ P2P vol/ capita))

13. When have you started using it?

14. Do you know other people investing/ lending over P2P platforms? What is their rationale of using it?

15. The share of loans over alternative finance is still only a tiny %age (around 1-2%) of loans via traditional financial institutions, do you think in the future the share of P2P will increase?

16. In your opinion, do you think alternative finance can overtake traditional banks (in the UK) at some point? Including FinTech start-ups / crowdfunding as a method of collecting initial investment for companies or personal projects / online risk-assessment or creditworthiness checks etc etc

17. how long does it take for you to pick a loan to invest into?

18. do you get some type of loan contract?

19. do you think the P2P ISAs are changing the way people invest into P2P?

jnm21

Having only used RateSetter, I cannot comment on funding circle, but I would advise that you check when your loans will repay & how quickly you can re-invest/withdraw the money. That said 16K is a large amount (I wish I had that amount, let alone 'disposable') & the issues that I am having on RS with a much smaller amount probably will not affect you so badly.

What I am annoyed about is that re-investment is needed to achieve the rate I asked for & 'got', but with the income model (no option based on period), capital & interest is repaid monthly. When I reinvested the first payment (no issues, didn't take more than a week to get the rate I wanted) I now find that it is repaying me pence each month, 3 weeks before the main investment pays enough to re-invest (£10 minimum), so I am faced with losing 3 weeks interest on an increasing amount each month.

I thought I'll just withdraw it, but no, it seems that there is a minimum for that too (I have never seen a minimum amount mentioned; perhaps someone can confirm what it is). Have to say I feel a little duped.

MrOverheads

With 16k I would spread it across perhaps 3 platforms. I'll give you my opinion on several below:
Funding Circle - the biggest peer-to-SME lender, can easily spread your monies across lot's of SME's to mitigate risk and you shoudl achieve the average returns stated as long as the economy continues as is.

SavingStream - all property investment, very liquid market so easy to get out at the moment, but will take time to invest a significant sum 12% fixed return paid monthly so you can compound your returns

Ratesetter - almost like a bank deposit account, covered by a provision fund but there is still an underlying risk but small and lower rates % on rolling monthly reflect this lower risk

FundingSecure - an online pawnbroker which has also branched into property lending. I only lend on the pawn type assets on here i.e. watches, cars, art - big benefit is only 6 month loans so if you don't want to renew you can get your money back in 6 months (maybe a little longer if they need to flog the asset to recover capital)

MoneyThing - small player, not much liquidity has a small handful of borrowers, coudl suffer a run of high bad debts if one of them defaults, but seem to be doing the right thing and higher returns do reflect the risk.

rebuildingsociety.com - has several loans currently open for bids (16% to 20% range) and an active secondary market. Higher risk but also higher percentage returns, again spread your funds across lots of loans and they do have an autobid feature like you mention (it's called bidpal). Currently has special summer offer of interest from the start of the loan auction, so you can earn interest straightaway. You can find my shared cashback link in the relevant MSE Links board.

Disclaimer: I'm a very minority % shareholder in rebuildingsociety.com
My own savings are lent out on SavingStream, FundingSecure and Rebuildingsociety.com and I use Ratesetter as a deposit account in case of particularly good opportunities on the 3 others that I want to be overweight in.

Fabio79

MrOverheads wrote: »

With 16k I would spread it across perhaps 3 platforms. I'll give you my opinion on several below:
Funding Circle - the biggest peer-to-SME lender, can easily spread your monies across lot's of SME's to mitigate risk and you shoudl achieve the average returns stated as long as the economy continues as is.

SavingStream - all property investment, very liquid market so easy to get out at the moment, but will take time to invest a significant sum 12% fixed return paid monthly so you can compound your returns

Ratesetter - almost like a bank deposit account, covered by a provision fund but there is still an underlying risk but small and lower rates % on rolling monthly reflect this lower risk

FundingSecure - an online pawnbroker which has also branched into property lending. I only lend on the pawn type assets on here i.e. watches, cars, art - big benefit is only 6 month loans so if you don't want to renew you can get your money back in 6 months (maybe a little longer if they need to flog the asset to recover capital)

MoneyThing - small player, not much liquidity has a small handful of borrowers, coudl suffer a run of high bad debts if one of them defaults, but seem to be doing the right thing and higher returns do reflect the risk.

rebuildingsociety.com - has several loans currently open for bids (16% to 20% range) and an active secondary market. Higher risk but also higher percentage returns, again spread your funds across lots of loans and they do have an autobid feature like you mention (it's called bidpal). Currently has special summer offer of interest from the start of the loan auction, so you can earn interest straightaway. You can find my shared cashback link in the relevant MSE Links board.

Disclaimer: I'm a very minority % shareholder in rebuildingsociety.com
My own savings are lent out on SavingStream, FundingSecure and Rebuildingsociety.com and I use Ratesetter as a deposit account in case of particularly good opportunities on the 3 others that I want to be overweight in.

So i could put 5K into 3 P2P companies such as Saving Stream, Rebuildingsociety.com & Funding Circle to maximise my returns?