Peer to Peer Lending- some advise please?

krish123

Hi Guys,

Just read about P2P lending and trying to gauge if this is something suitable for me.

lets say i wanted to lend £50 per month is this possible? want sort of return would you get on this sort of money?

also when do you get repaid the interest earned, on a monthly basis or after the end of the term so say 1,3,5 years etc?

For newbie like myself what would be the best site to use ratesetter? Zopa?

I want to keep risk minimal, not necessarily out there for the best returns but more safe investments.

PeacefulWaters

For that sort of sum, seeking minimal risk, I'd be looking at high interest regular savers linked to current accounts.

First Direct. M&S. Lloyds.

Broken_Biscuits

heres a good site that compares p2p.
http://www.4thway.co.uk/

might be a good starting point for your research.

krish123

I already earn 3% on my current account not setup any savings accounts though.

I also invest monthly into Vanguards lifestrategy 80 fund too.

thanks for that link il check it out.

Is P2P only worth it with bigger sums of money ?

Can you not drip feed money and compound?

bowlhead99

With p2p lending you can put in new money every month if you like, usually have to commit to loaning it out for a certain term (eg a year, three, five) although sometimes you may be able to get out of the loan early without a massive penalty or loss.

Then whoever borrowed the money starts paying you back (e.g. a 5 year loan will get paid off in 60 monthly chunks) so in month two when you are ready to lend out your next 'drip fed' money you might already have some portion of the first month's lent money (some interest and a bit of the capital) paid back to you, and you have to lend it out again. You can usually set it to auto-lend out any spare money, but then they are choosing who to lend it to, and you have less control.

As the others mentioned above, you can get decent rates by shopping around for the top paying 'regular saver' accounts with the banks. Like FD, M&S, Lloyds, HSBC you can get 4% without needing to commit your money for a long time period (the top rates at P2P sites are for the maximum length of loan).

P2P carries more risk than the banks as it isn't covered by the depositors protection scheme which all banks are. The borrowers might not pay you back, or the middlemam might go bust. So if you truly want to keep risk 'minimal' as you suggest, you shouldn't use it.

But if instead you're willing to take a bit of risk to try and get more than the 4-6% on a regular saver account or the 3-5% on a current account, you will find some P2P options available that might pay more. I wouldn't bother with Zopa like you suggested; I don't use them but their front page is currently talking about only 4% for a 3 year loan, which most people would say is clearly not as good as getting 3-6% fully insured and guaranteed and shorter term (or instant access) with the banks

Obviously if you have used up all the top current accounts and have more available per month than can fit in the regular saver accounts, or you are looking at some of the more exotic loans to businesses at the higher-reward end of the p2p spectrum at much higher rates than Zopa, you might feel p2p is more useful.

While it's riskier than bank deposits, if you spread your money very widely it's probably rather less risky than your Vanguard Lifestrategy 80 which could lose 30-40% of its value in a year quite easily. But it depends how much you can afford to lose and what extra premium it's really paying over the best bank accounts.

Broken_Biscuits

you need only £10 to use the two sites you have mentioned. So £50 is fine.

I lend with ratesetter.
if you set up a 5 year loan with them for 60 months you would get about £1 back per month. Approx 80p of that will be repayment and approx 20p will be interest.

if you then put in a further £50 the following month and reinvest the interest you will then have 2 loans, one for approximately 49.20 and one for approximately £51.

fast forward a few months and you have lots of little loans all repaying a little any given day of the month.

you can choose to reinvest capital and interest, just capital or take out all your returns.

there is an option to take your money early after you have locked in but obviously with a small charge.

hope that helps

Jonbvn

Broken_Biscuits wrote: »

you need only £10 to use the two sites you have mentioned. So £50 is fine.

I lend with ratesetter.

there is an option to take your money early after you have locked in but obviously with a small charge.

It is more than a small charge. If you pull out early the charges will outweigh any interest you earn.

MARTYM8`

I would max out regular saver options as has been said.

P2P is fine - but its riskier as there is no FSCS protection.

You might think that isn't an issue - but check out the DotCommunity thread in the ISA section! Things are fine now - but in a possible downturn....

Broken_Biscuits

Jonbvn wrote: »

It is more than a small charge. If you pull out early the charges will outweigh any interest you earn.

just had a read of the ratesetter terms for opting out early.

looks like you are mistaken.

its a calculation based on current market rates compared to your own. So if you are selling when rates are low you could get stung for more of an exit charge than if you try and sell out when rates are high. Fair enough. The least you will get charged is .25 % of the outstanding balance and you still cant cash out individual loans less than £10, so may have to wait a little while to get it all back.

just "for fun" i got most of the way through the process of selling out today and it quoted me a £16 charge. This is less than i have received in interest in the last 3 months. It worked out about .5% charge. Perhaps a high ish charge because rates are currently low and ive tried to only top up when rates are high.

i wouldn't recommend taking out a 5 year product and then selling up early a few months in. But its nice to see that if you have a shtf moment you actually wont be heavily penalised if you desperately need the money!

agent69

Broken_Biscuits wrote: »

just had a read of the ratesetter terms for opting out early.

looks like you are mistaken.

its a calculation based on current market rates compared to your own. So if you are selling when rates are low you could get stung for more of an exit charge than if you try and sell out when rates are high.

I think you have misunderstood how the sell out works. It's based on the rates that existed when the loan was taken out. Current rates are not relevant.

The exiting Lender’s interest is reduced to the level they would have received based on the length of time they have ended up lending for.

As an example say the 5yr market rate is 6.5% and the 1 year is 3%. You put money in the 5 year market and after 2 years you want to sell out. Ratesetter will say that you are only entitled to 2 years of interest at the 1 year rate. So you will have to repay the 3.5% that you have been overpaid over the previous 2 years.

Look here for further details http://p2pindependentforum.com/thread/1232/ratesetter-sellout-excessive-income-products

Broken_Biscuits

cheers.

happy to be corrected.
was reading through it on the trek home for the first time today but paying more attention to my own cash penalty than the actual small print.


will have another read through it but happy to see that if an emergency does pop up then there isn't a huge charge for withdrawal.