Peer to Peer lending

Broken_Biscuits

Hello,

I will come into some money in early 2015. I have worked out that after paying off the maximum 10% my mortgage allows for this tax year and then maxing out into the 2 current accounts offering 5%... that I will have about £5000 to invest. I was looking at the peer to peer lending sites and was wondering if any one could help me out with a few queries.

It seems that you can either take the monthly repayments or reinvest them into further loans. The latter is advised for maximum growth as you are then earning interest on your interest.
How does this work? Is it as simple as just ticking a box and then your returns are automatically reinvested*. It seems that for best returns you need to lock in for 5 years. I won’t need the capital back before 5 years and so happy to do this, but I think my situation may change in say 2 years time where I would appreciate the monthly repayments to be taken out as cash rather than reinvested. Is this something you can do with peer to peer or do you at the beginning of the 5 year term decide whether to reinvest or collect the interest with no flexibility to change mid term? Also It seems that you can drip feed monthly extras in too. Again, is this flexible? can you set up a 5 year investment where around the beginning of year 3 you stop the monthly additional payments?

Also it seems that the rules are changing in April re tax regarding peer to peer. Since I would be looking to invest around February time. Would it make sense to wait until the rule change. Im a basic rate tax payer.

*if it’s actually quite an ongoing time consuming affair, then I may be better off with a more passive investment. But I guess that’s another post!

Thanks for your time.

bsms1147

My only experience is with Ratesetter, but you can change the reinvestment settings at will and at any time. That is you can reinvest more, stop reinvesting, or withdraw each repayment. In addition any money already invested is also not tied up completely, and can be withdrawn at any time, though to do so early will incur a cost.

The interest is compounded (interest on interest) with reinvestment, and that's what gets you to the headline interest rate ~6% APR over 5 years. Without reinvestment the returns are lower.

And the tax status may change. But paying 20%/40% tax currently on your P2P savings interest may still be better than paying 20%/40% on the likely lower interest (but arguably lower risk) that you would get elsewhere.

Do bear in mind there are lower-risk options out there like 3 and 4% current accounts too.

thebritishbloke

If you think there's only 2 accounts that pay 5%, then think again. If I were you, I'd look to maximise current accounts rather than investing it where it can be lost.

TSB Classic Plus (2 if you've already opened them, 1 if you haven't) - £2k @ 5%
Nationwide FlexDirect - £2.5k @ 5%
Club Lloyds - £5k @ upto 5%
Santander 123 - £20k @ 3%

There's loads more.

badger09

thebritishbloke wrote: »

If you think there's only 2 accounts that pay 5%, then think again. If I were you, I'd look to maximise current accounts rather than investing it where it can be lost.

TSB Classic Plus (2 if you've already opened them, 1 if you haven't) - £2k @ 5%
Nationwide FlexDirect - £2.5k @ 5%
Club Lloyds - £5k @ upto 5%
Santander 123 - £20k @ 3%

There's loads more.

Club Lloyds highest is 4%

Also BoS Vantage 3 x £5k @ 3%

Ryan_Futuristics

I've just put some money into Funding Circle - as a substitute for a bond ladder (they function pretty similarly)

Funding Circle is very simple ... You sign up, add some money, then you can just turn Autobid on, tick the box to say "Lend no more than 1% of your fund to any one business", and everything takes care of itself

You can set interest rates you want for each risk band - I've got an average 10.1% interest rate ... After bad debts and fees, that should be a 7.1% return (you could easily go a few percentage points higher if you want to lend your money out more slowly ... I've opted to favour less risky lending bands which my investment's relatively small, but you could lend out at 14%)

The money is put into a combination of 1, 3 and 5 (I believe) year loans ... Each lender pays you back (with interest) monthly (or so) ... So with a few £grand invested, you get almost daily repayments coming back

Money's automatically reinvested, unless you turn Autobid off, then it just piles back up in the account

If you want to withdraw money early, you can sell your loans (which incurs a small fee, I believe)

To me, it seems like a lot less hassle than juggling savings accounts - and if we're talking real returns (above inflation) for 7% it's probably worth having your money a little more tied up

Archi_Bald

and Tesco 2 x £3K 3%

Upwind

Ryan_Futuristics wrote: »

I've just put some money into Funding Circle - as a substitute for a bond ladder (they function pretty similarly)

Funding Circle is very simple ... You sign up, add some money, then you can just turn Autobid on, tick the box to say "Lend no more than 1% of your fund to any one business", and everything takes care of itself

You can set interest rates you want for each risk band - I've got an average 10.1% interest rate ... After bad debts and fees, that should be a 7.1% return (you could easily go a few percentage points higher if you want to lend your money out more slowly ... I've opted to favour less risky lending bands which my investment's relatively small, but you could lend out at 14%)

The money is put into a combination of 1, 3 and 5 (I believe) year loans ... Each lender pays you back (with interest) monthly (or so) ... So with a few £grand invested, you get almost daily repayments coming back

Money's automatically reinvested, unless you turn Autobid off, then it just piles back up in the account

If you want to withdraw money early, you can sell your loans (which incurs a small fee, I believe)

To me, it seems like a lot less hassle than juggling savings accounts - and if we're talking real returns (above inflation) for 7% it's probably worth having your money a little more tied up

Morning RF....

I'm also very interested in investing into P2P and have been considering Funding Circle and also Zopa & Ratesetter as possible destinations for a good chunk of cash.

There seem to be lots of reservations around regarding P2P and there aren't many that seem to recommend it. I understood it with Funding Circle you can choose to Autobid and spread the risk and with Ratesetter & Zopa they have seperate 'Funds' that diminish the 'risks' involved and act as back-up should things go Pete Tong.

Am I missing something here, or are these organisations only as 'risky' as something like the stock exchange...

How long have you been an investor RF - and have you tried either of the others?

Ryan_Futuristics

Upwind wrote: »

Morning RF....

I'm also very interested in investing into P2P and have been considering Funding Circle and also Zopa & Ratesetter as possible destinations for a good chunk of cash.

There seem to be lots of reservations around regarding P2P and there aren't many that seem to recommend it. I understood it with Funding Circle you can choose to Autobid and spread the risk and with Ratesetter & Zopa they have seperate 'Funds' that diminish the 'risks' involved and act as back-up should things go Pete Tong.

Am I missing something here, or are these organisations only as 'risky' as something like the stock exchange...

How long have you been an investor RF - and have you tried either of the others?

Good morning Upwind

I've only just dipped my toes in with P2P lending - I put a few £thousand in a week or two ago just to see how it works ... So maybe there is still something I'm missing

But so far it seems like an automated bond-ladder (which would be my alternative for fixed income) with very low charges and good yields ... Money is a bit tied up (much like bonds) - some of it being repaid over 12 months, and some over 5 years - but you can sell loans, or turn Autobid off and let the capital pile up in your account

It's the 7% from Funding Circle that makes me think it's worth the effort (maybe as it gets more popular it will sink to current account levels) but right now you can secure these loans over 5 years

Apparently Wallstreet hedge fund managers are piling into P2P lending in the US now ... I'd love to know the reason for the scepticism - otherwise I'll be putting about 10% of my portfolio in I'd think ... Riskier in that there are unknowns (what if these firms crash?) and no protection from the government, but surely only as risky as a high yield bond fund under normal circumstances

Upwind

Thanks RF...

There are some shortfalls - pointed out by bowlhead99 in the '200k inheritance. What to do?' thread that I have just responded to.

I think that I will have a dabble in the P2P markets, however, I shall perhaps moderate any investment, and not risk being caught with my pants down.......... in the financial sense.

Broken_Biscuits

Thanks for the responses regarding P2P. As I pointed out in the opening post, I have a few months to research and then make the right decision. The information about the current accounts is quite readily available to anyone with a spare 5 minutes and an internet connection and so it wasn’t an issue finding that myself... I found researching P2P quite difficult.. the expected returns are there to be seen, but the actual use and mechanics of the system are not so transparent. I feel that I’m in a much better position to make a decision now though so cheers again for the responses. My mortgage rate is 3.5% so it seems to me the wrong decision to hold anything long term in any of the 4 and 3 percent savings accounts (unless I come into considerably more money again of course and it needs a guaranteed safe home) when overpayments would be more of a benefit. I only bought my home in January but have already managed to throw in an overpayment of £3000 before we hit April and plan to get the max 10% off this year. I guess another option would be to overpay another big chunk straight into the new tax year in April if I decide the risk of P2P or any of the other investments on my consideration list are , in my mind, too risky.

I did do a search for peer to peer bad new stories / nightmare/ horror etc. Brings up nothing obvious on google. Can it be true that no one has used peer to peer and come away with a negative result? If you diversify, it seems a fairly safe level of risk. Obviously there is risk, but you have to weigh it up against the around double rates of returns (to say a 3% current account). If I was going to dip my toe in early to get a feel for it, what is the minimum amount you would need to invest to get at least 100 loans covered. Ie, what is the minimum chunk you can loan out. Assuming £10 x100 = £1000. Also Ive read that the best way to stay covered is to have your money split by 200 loans. Is there no auto box to tick that says only lend out 0.5 of total capital to any one loan?

thebritishbloke

I'd just pay off the maximum overpayment on your mortgage, then pop the money into a high interest current account until you can then pay another large overpayment.