Funding Circle advice/help and understanding

ajo

Hello

Its been a long time since I have been on or posted on these forums.

I have no debts, my isa's are all maxed out and not a lot of expenses, so I am wondering what to do with the money that I have and earning.

I am looking into the Funding Circle. The concept looks great but as a person and not a business I could do with a few things explained.

First of all, can I as a normal person and not a business invest in this, I think the answer to this is yes?... so that makes me ask how this would affect the tax I am paying now from my employed job. I have never had more than one income so understanding this would be helpful. Would I loose out on more, how do I claim any earnings etc.

I guess you would have to invest a fair amount to make this worthwhile..

I will leave it there for now, any help would be great.

Thanks

mhmmhm

You can invest as an individual, you don't need to be a business.

Any earnings need to be declared to HMRC so they can take their cut of the tax, as no tax is deducted by Funding Circle.

ajo

mhmmhm wrote: »

You can invest as an individual, you don't need to be a business.

Any earnings need to be declared to HMRC so they can take their cut of the tax, as no tax is deducted by Funding Circle.

Thanks. Would this make a difference to my tax code etc on my current employed job, or would I keep it seperate.

Also it says that you are paid back monthly, so as an example if I invested £1000 at say 8% to be paid back over a year I would get: £90 a month? (minus 1%)

westy22

so as an example if I invested £1000 at say 8% to be paid back over a year I would get: £90 a month?

Theoretically, yes. In reality it wouldn't work like that unless you invested the full £1,000 into one 12 month loan at 8%.

Most people would use their £1,000 to buy many £20 to £50 'parts' of loans, all at different interest rates and repayable over different timescales. This spreads your risk should some loans go bad. Each loan part would repay you a little bit of interest and a little bit of capital each month.

ajo

westy22 wrote: »

Theoretically, yes. In reality it wouldn't work like that unless you invested the full £1,000 into one 12 month loan at 8%.

Most people would use their £1,000 to buy many £20 to £50 'parts' of loans, all at different interest rates and repayable over different timescales. This spreads your risk should some loans go bad. Each loan part would repay you a little bit of interest and a little bit of capital each month.

Thanks, that makes sense. I said 8% as an example for ease, just saying that they would all be 8%

I would have to get right in then and give it a go with at least £1000 rather then give it a try with £20 I would imagine.

mhmmhm

I think the minimum investment is £100. But that's very inefficient, because as the money comes back in each month, you get a balance sitting there that you can't do anything with, so you don't get 100% of your funds invested all the time.

The more you have invested, the more comes back into your account each month which you can reinvest more quickly, so you have a lower proportion of your money sitting around in the 'cash' pot earning nothing.

ajo

mhmmhm wrote: »

I think the minimum investment is £100. But that's very inefficient, because as the money comes back in each month, you get a balance sitting there that you can't do anything with, so you don't get 100% of your funds invested all the time.

The more you have invested, the more comes back into your account each month which you can reinvest more quickly, so you have a lower proportion of your money sitting around in the 'cash' pot earning nothing.

So rather than adding more, you reinvest with all the small amouts that is coming in. Sounds good, and kinda fun!

mhmmhm

Yes - just to clarify, by 'min investment' I mean the minimum amount you can deposit is £100. You then lend in batches of £20 or more (unless you buy a part-paid-back loan from another lender, in which case you can pick up loan parts of under £20).

So if you invest just £100, then you potentially have to wait a long time for your first £20 to come back in to lend out again - meaning that your return goes down (because you haven't got £100 lent out at 8%, you've effectively only got £90 lent out); if you lend more, then it recycles much more quickly, and you have a higher % of your money lent out at any time.

I hope I've explained that clearly enough!

MercenaryMan

I've been using FundingCircle for a couple of months now.

• Loan parts can be bid for from £20
• Loans have 1, 3 or 5 year terms across 4 risk classes
• There's a marketplace for buying and selling loan parts
• You have to deduct the site's fees from any headline rate
• You would be wise to spread your loans to minimize the risk of defaults which will also hurt your return
• There's an autobid feature but I haven't tried it

I would only commit more cash when you've depleted your available funds - you've typically got six days to bid on loans.

I perceive the rates to be on a downward slide. I regard it as more of a hobby than something that will bring me serious returns.

ajo

mhmmhm wrote: »

Yes - just to clarify, by 'min investment' I mean the minimum amount you can deposit is £100. You then lend in batches of £20 or more (unless you buy a part-paid-back loan from another lender, in which case you can pick up loan parts of under £20).

So if you invest just £100, then you potentially have to wait a long time for your first £20 to come back in to lend out again - meaning that your return goes down (because you haven't got £100 lent out at 8%, you've effectively only got £90 lent out); if you lend more, then it recycles much more quickly, and you have a higher % of your money lent out at any time.

I hope I've explained that clearly enough!

You have explained well, thanks. The only other thing I don't really get is buying a part-paid-back loan from another lender.

Malices

If another lender needs to withdraw their cash from funding circle early for some reason - they can 'sell' their loans to you at either face value or at a profit or loss depending how quickly they need the money. Most likely these loans will already be part paid back, and they will only be 'parts' of the loans (see above re spreading risk by only lending £20 or so to each company) - so you can purchase these for whatever price they are being sold at, which will depend on how much they're currently worth and how greedy/desperate the seller is!