Increasing your savings return whilst investing in people.

SimonPT

With low interest rates for savers on one hand and so many people unable to climb out of debt because of the high APR they pay on credit cards on the other hand has anyone considered an investment whereby someone who has £20,000 in the bank could invest it to someone who has £20,000 of debt (but can only afford the minimum payments so their debt is never going down)?

My wife and I are in this position. We can afford to pay the minimum on our debts each month but the cards are immense and the credit does not go down. We could go into Debt Relief measures but I feel there is a better, mutually reciprocal, win win situation to be had if we link up with an investor who is only getting a small return from their money in a bank.

We can afford to beat UK bank interest rates for a £20,000 investment AND the investor would get back £4600 a year (for 5 years) over 12 monthly installments to re-invest how they wished. They would also get the satisfaction of knowing, not only that they have been given a better return than the banks they have helped a couple climb out of a cycle of debt.

I'd love feedback about this idea. Tell me what you think lovely people of the Money Savings Community.

Thanks

SimonPT

doe808

What security would you grant for the loan?

redux

People will be sympathetic to your circumstances, but a question that starts with a threat to go into a debt relief order doesn't sound like an attractive investable prospect.

Do some reading in the Debt Free Wannabe section, and it might be worth a chat with your bank.

SimonPT

We are not near to DR measures. We are just in a position where we have been paying back our debts for a least 3 years and they are not significantly going down nor will they.

Mrs_Z

Yes, in theory - a great idea. But back to reality. Would I give (or 'invest') £20k of my hard earned money to someone who has not been able to manage his financial position? What guarantee is there that with your history, as soon as the £20k arrives your bank account you would not blow it in a new car and a couple of holidays, etc.... rather than use it for paying the debt. What guarantee is there that even if you did pay your debts off, few months down the line you'd simply stop making the regular monthly payments due and use the money to buy something more pleasurable?

The fact that you pay high interest rates to a bank represents the fact that you are not credit worthy, you represent a high risk and that's expensive. Sorry to be so blunt but that's how the cookie crumbles. I'd also highly recommend the Debt Free wannabee board. Maybe it's a time for a lightbulb moment. Wish you the best of luck.

YorkshireBoy

3 years is a long time to have gotten nowhere! In that time, why haven't you...

1. Increased your earnings?
2. Reduced your spending?
3. Restructured the debt, ie 0% BT cards?

Any of the above, but ideally all 3(!), would have placed you in a "significantly" better position than you're in now.

jimjames

SimonPT wrote: »

We are not near to DR measures. We are just in a position where we have been paying back our debts for a least 3 years and they are not significantly going down nor will they.

Could you transfer them to a lower/0% rate? You may find that if the banks are not willing then an investor would want a much higher rate to compensate for the risk of default (even if to you it's only a remote possibility).

In principle a good idea but effectively it's probably similar to the peer to peer setup where you at least spread your risk across multiple debtors. As above maybe try reducing outgoings or looking at P2P lenders that may charge less.

SimonPT

That's a good question. I would set up a legally binding agreement between the 2 parties. We are not house owners so we cannot offer that kind of security. I would expect to meet the potential investor in person so they can verify who we are, examine back payments made to the bank and discuss the deal further.

Archi_Bald

As they say on Dragon's Den: I'm out.

Plus

Have you looked at P2P, from a borrower's perspective? That seems pretty much what you describe. There's a company in the middle doing the due diligence and risk spreading - obviously they take a fee, but they are providing a service.

I have no idea whether you'd be eligible, but worth a look?

masonic

I am currently lending via some P2P loans secured against some jewellery in a pawn-style arrangement in which I am earning a 12% return and the borrower is being charged around 20% APR interest. What sort of rate were you thinking an unsecured loan of this type would attract? Do you think any rate would adequately compensate an investor for the risk in financing such a loan?