Need advice on Ratesetter 5 year investment please

will76

Hi folks, I'd really appreciate it if someone who uses Ratesetter or possibly other Peer to Peer schemes out there can enlighten me.

I am thinking about putting £6000 into Ratesetter and lending it out on a five year basis at 5.9 %. However, if I understand correctly (and I do find this rather confusing), it seems that they calculate that rate based on money being lent out on a rolling basis.

My question then revolves around what happens at the end of the five years. Again, I might be misunderstanding this, but when I spoke to an advisor a while ago it seemed that it could take some time after the initial five years for all the money to end up back in my pocket.

I can afford to not see the money for 5 years but if it is going to be a hassle to get the money back after that then I'm going to have to re- think things.

Thanks very much for any advise on this.

jimjames

Have you already filled the 5% bank accounts?

If you're prepared for loss and a 5 year plus term then have you considers S&S ISAs instead? Far more flexible than 5 years and easy to get money out.

durhamviper

You don't get your £6000(+ interest) back in 5 years time. Instead, you will get a mixture of capital+interest monthly for the next 60 months.

mikb

durhamviper wrote: »

You don't get your £6000(+ interest) back in 5 years time. Instead, you will get a mixture of capital+interest monthly for the next 60 months.

With Ratesetter (and ZOPA) people can pay back early without penalty. And they often do.

So if you lend £6k in one "contract" on RS, there is a possibility that your lending will come to a sudden halt when the borrower pays up in full.

You may wish to just place £500-£1000 on the market, wait for it to match, then place the next tranche until it's gone. That way, less likelihood of early termination ending your lending.

bsms1147

To get the advertised rate you need to reinvest each month in the 5 year market. So you will be reinvesting for a further 5 years each month, and your 'end point' will continuously be five years in the future. If you do not reinvest each month, the rate you receive will be roughly half the headline APR (~3%).

It is in theory quite easy to get your money out at any point, though this will incur fees and potential loss of interest.

edinburgher

Without meaning to come across as rude, the OP should not be investing in P2P lending if they do not understand how it works. If they don't understand something as basic as how the loans will be repaid, they definitely won't understand the risks associated.

Please do some more research before tying up ££££ in something that you don't understand

verybigchris

Just to be clear: you get the headline rate. If you lend at 6% AER, you get 6% AER.

Where some confusion comes from is that the whole of your capital isn't invested for the whole of the term. Each monthly payment gives you some capital back, and of course once it's back in your hands the borrower isn't paying interest on it.

N1AK

will76 wrote: »

My question then revolves around what happens at the end of the five years. Again, I might be misunderstanding this, but when I spoke to an advisor a while ago it seemed that it could take some time after the initial five years for all the money to end up back in my pocket.

I've got ~£500 lent at £500 with Ratesetter on the 5 year market. Your understanding is a little out unless you choose to reinvest all returns. What will happen by default is that after you lend the money out, you will get 1/60th+interest back each month as the loans are repayed. You can then choose to reinvest at the current market rate or not. If you reinvest then it will be 5 years from that point that you get your last penny back. If you never reinvested then you'd have all your money back in 5 years.

N1AK

bsms1147 wrote: »

If you do not reinvest each month, the rate you receive will be roughly half the headline APR (~3%).

It is in theory quite easy to get your money out at any point, though this will incur fees and potential loss of interest.

You get the full rate, if you choose not to reinvest then you just get it for a shorter period of time. Most people aren't going to choose not to reinvest, then just sit on the money earning no interest

bowb

Hi will76 The way I see it If you lend 6k for 5yrs (60 months) , your money will come back monthly plus interest . Eg: £100 capital + £5 interest, the next month the same capital return but a little less interest because you only have £5900 lnvested etc. You dont have to reinvest in the five year market you can put it in any market or back to your bank. I would return to your holding acc and reinvest in the monthly .No dout I wil be put right if I am wrong

bsms1147

Initially invest for 5 years; the first 2 years of repayments you reinvest in the 3 year market; the following 2 years of repayments you reinvest in the 1 year market; the next 11 months of repayments you reinvest in the monthly market.

All your money is then 'ready' at month 60.

Your return would be something like 4.7% before tax and the risk is spread between 60-odd different loans.