Peer to Peer Lending

boristherussian

Due to the poor interest rates offered by banks and building societies I am contemplating Peer to Peer lending. I would be interested in other peoples experiences.

ChesterDog

Rates have dropped there too. I use Zopa (but have withdrawn everything I can, due to the low rates) and Ratesetter which has been marginally better.

In the latter, I am currently averaging 5.9% gross on five-year loans, but new money is going out at much less.

It's not exactly going to set the world on fire, but is a handy bit of diversificaion.

Wilkins

boristherussian wrote: »

Due to the poor interest rates offered by banks and building societies I am contemplating Peer to Peer lending. I would be interested in other peoples experiences.

I use Zopa, but like everywhere else the rates have declined significantly over the past 12-18 months and I am no longer putting new money in, though I am rolling over loans as they expire. Current rate around 5.45% after fees.


I also use Funding Circle where rates are higher but, as I have only been in two years, I suspect I have not yet been hit by true default rates. Current rate around 8% after fees.


As Chester Dog says, a bit of diversification.

Upwind

Guys,

I am also interested in this - having read Martins pieces on it a few months back I understand that the risk factors have been mitigated, so this may be an option for me.

Was slightly confused by how the investment works. I have £10,000 and was looking at investing this, but read something about having to wait until your money is 'lent out'. Can anyone explain (in layman's terms) haow it works?

lalman

I have had a very similar experience to ChesterDog - i lent money back in 2008/09 i believe and was getting some extremely good returns - 10-15% pretax... but after QE and ultra low rates kicked in that all stopped. I have since withdrew my money because i thought default rates would go up.

Basically and if other people could correct me if i am wrong at any point - you could deposit 10k into a holdings account (with RBS if i remember correctly). then you can set your rate that you wish and if there its in a zone of compatibility - i.e. there is someone who is willing to borrow at the rate you want to lend at... then you lend the money to them. You can set the amount you want to lend to a specific person - so for example £100 to mitigate risk... and you can also now get protection i believe against defaults...

All of the information is clearly set on there websites - and i recommend you read up on all the information on there sites and come back with additional questions but i found it really clear.

mikb

lalman wrote: »

then you can set your rate that you wish and if there its in a zone of compatibility -

You can set the amount you want to lend to a specific person - so for example £100 to mitigate risk..

All of the information is clearly set on there websites - and i recommend you read up on all the information on there sites and come back with additional questions but i found it really clear.

With ZOPA you no longer "set your rates", you get the rate on offer, maybe, subject to averages, predictions and crossed fingers. The rate is a prediction (target) that they try to achieve. Many lenders have discovered the prediction is not quite accurate, and changes have been tried, to fix this.

You also no longer "set the amount you want to lend". Zopa decide the amount you lend, based on how much $$$$ you have available, and that will happen.

There is no longer any "Zone Of" part to it. All these controls, and more, were removed around May this year to "simplify" the product, make it more like a bank/bsoc account, and fundamentally, to put ZOPA in control of your cash, not you. There has been wailing and gnashing of teeth, as you can imagine.

If you are thinking of signing up for ZOPA, do NOT read any "old" information and lazy journalism that tells you how it USED to work. Get the current operations, try and understand it (good luck, long term users are still figuring it out!) and then see if you interested.

Some good places to start :-

http://p2pindependentforum.com/ (for ALL the major and minor players)

http://forum.fundingcircle.com/ (just FC, official)

http://talk.zopa.com/ (threads on not JUST Zopa)

Ratesetter don't have a forum of their own, but are active on the 1st and 3rd above.

Thrugelmir

boristherussian wrote: »

Due to the poor interest rates offered by banks and building societies I am contemplating Peer to Peer lending. I would be interested in other peoples experiences.

With a higher rate of interest (return) comes risk.

How much capital are you prepared to lose?

brendon

I, too, have been winding down my ZOPA balance. 3.9% doesn't make sense when you consider (a) your holding has no government backing, if the company were to go bust and (b) base interest rates are likely to rise in the next 3 years, so it's not worth getting locked into it. It's also a nuisance to realise your investment -- having to log in every month to request a withdrawal.

Wilkins

brendon wrote: »

I, too, have been winding down my ZOPA balance. 3.9% doesn't make sense when you consider (a) your holding has no government backing, if the company were to go bust and (b) base interest rates are likely to rise in the next 3 years, so it's not worth getting locked into it. It's also a nuisance to realise your investment -- having to log in every month to request a withdrawal.

That seems unduly negative to me. Zopa finds are held in escrow. If the company were to go bust, loans would still be managed as part of the administration process and lenders should still get most of their money back, eventually. The fact that rates will rise will also be reflected in Zopa rates. If logging in once a month is a chore, I presume you won't be using the MSE forum very much.


Of course, it's good for the remaining lenders that you are withdrawing cash. Keep up the good work!

paddyrg

Upwind wrote: »

Was slightly confused by how the investment works. I have £10,000 and was looking at investing this, but read something about having to wait until your money is 'lent out'. Can anyone explain (in layman's terms) haow it works?

With Ratesetter, you chuck the money in your account and choose how you want to lend it out. If you want 8% interest over 5 years, you offer it to lend in the 5 year product at 8%. If other people are lending at 7.5% their money will be lent first, yours will stay in your account earning nothing. If however you decide to lend at 7%, yours will be lent before the guys at 7.5%. It's a race to the cheapest rates.

If you don't want to commit to 5 years, maybe you'd rather commit to the monthly market instead? The rates are signicantly lower, but you can cash out easier.

agent69

Generally speaking, rates have stabilised in the last 6 months.

P2P tends to pay less (max 5.6%) but has lower risk, P2B pays more (typically 10%) but at a higher risk.

If you fancy a punt on P2B it's important to see what security the loan comes with. Beware of the unsecured loans on FC as guarantees (directors or others) aren't normally worth the paper they are written on. Overall recoveries on FC are poor compared to some of the other P2B lenders because of the lack of asset security.

Low risk low return - Zopa or Ratesetter (both have the benefit of a contingency fund)

Higher risk medium return - Funding circle (approx 10% have security offered)

Higher risk higher returns - Thin Cats, Assetz Capital (100% asset secured)

Personally I like Thin Cats because the involvement of sponsors means there's an extra set of eyes checking the loan over