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Peer to peer loosing

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  • Malthusian
    Malthusian Posts: 11,055 Forumite
    Tenth Anniversary 10,000 Posts Name Dropper Photogenic
    redux wrote:
    Not much chance of any response to requests like that. The forum is still censoring acute accents, such as appear in French and other languages, and thus in words adopted into English, like fianc! and clich!.

    But not heavy metal ümlauts, strangely.

    In answer to the OP's question, investors in Quakle lost the lot, although this was an extremely small player.

    It is important to bear in mind that no matter how a P2P platform is run, there will still be risk. If their loans are secured on an asset, there is no guarantee that in the event of default the proceeds of selling the asset (after costs) will cover the outstanding loan. If there is a "bad debt fund" there is no guarantee that it will have sufficient funds to cover everyone in the event of a high number of defaults. And finally you have to ask what happens if the platform itself goes bust. (The underlying debts may still exist, but are they enforceable?) If you find yourself spending a lot of time worrying about the risk of losing your money then you have to ask if P2P is right for you in the first place.
    Even now with the stock market currently in the doldrums I would rather take my chances there.

    Don't you mean especially now?
  • Dan83
    Dan83 Posts: 673 Forumite
    Eighth Anniversary 500 Posts Combo Breaker
    Yes I understand the risks, unfortunately I invested £3000 (to me a large sum) in a company at 4% locked in for 18 months, abit more research and I could of got a better deal with out any risk in a current account. I've wrote it off to be honest, if it comes back great, if not, it's a learning curve.

    When my current loan finish in funding circle, currently 1-2 months, I'll be switching over to saving stream and give that ago.
  • redux
    redux Posts: 22,976 Forumite
    Part of the Furniture 10,000 Posts Name Dropper
    I looked at one platform and it seemed to be exclusively property development.

    I'm not principled against that, but it has been very cyclical, make loads of money in phases and almost (or actually) go broke in between.

    Anyone with a strong belief in that sector might instead have bought shares in certain house builders, where (past performance is no guide to the future) it was possible to multiply one's funds by 4 to 6 times in the last 5 years.

    But look at the 10 year view as well as the 5. It was possible to lose over 90% from 2006 to 2008.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    edited 16 February 2016 at 2:41PM
    Dan83 wrote: »
    Yes I understand the risks, unfortunately I invested £3000 (to me a large sum) in a company at 4% locked in for 18 months, abit more research and I could of got a better deal with out any risk in a current account. I've wrote it off to be honest
    When my current loan finish in funding circle, currently 1-2 months, I'll be switching over to saving stream and give that ago.

    But as you already identified, you could get 4% or 5% risk free in current accounts and regular savings accounts so you have to identify just how much extra you need from a peer to peer loan for it to be worth taking on the extra risk.

    There are some here and on the P2P forums who have maxed all the good risk-free bank and building society stuff and have the time and nous to evaluate some of the more exotic asset backed corporate lending at 10%+. It's not suitable for everyone though, even if you do day you understand the risks. If 4% tempted you over to p2p without even trying a top paying current account or regular saver first, might be worth taking stock of all the options before diving into savings stream or the like.

    I say this not because you can't afford to write off £3k (you probably can), and not because you don't understand the risks of not getting paid back (you probably do), but just because I wonder if you're perhaps saying this money is spare, what the heck let's do this, when there are other ways to get a good percentage of the expected total return without taking those risks.
    if it comes back great, if not, it's a learning curve.
    Learning from your own mistakes is a better quality lesson than reading a textbook of advice from others. However, in a lot of cases it can be an unnecessarily expensive lesson.

    Anything is fine if you can afford it, but if you ask a smart billionaire he will not say he got there by risking 50% of his capital to get an extra 1% return.
  • Dan83
    Dan83 Posts: 673 Forumite
    Eighth Anniversary 500 Posts Combo Breaker
    Bowlhead99, I'm doing this on my phone, so can't quite certain bits easily and write a reply like you did, so I'll try and answer what you said in the same order as you have said.

    When I opened my 18month bond with £3000 4% interest and a free iPad mini, I was stupid enough to think it was a good deal with out checking everything current accounts, the 4% knocked the socks of what my daily current account pays.

    I have since opened and filled a nationwide, TSB, Lloyds and 1 of 2 tesco accounts, but I'm aware there are more current account and regular savers to take advantage off. It was a stupid move and I won't deny that. I also opened some other bonds which guarantees a return and they mature in May.

    I certainly can't afford to loose £3000, but it's savings and I don't plan on using it for anything at the moment. I've had to write it off (in my head at least) to stop from checking it everyday and making sure my £3000 was still there.

    As for a learning curve, I understand exactly what you say, the money I know use in funding circle, is switching bonus money, when I gets paid, I transfer it in and take a higher risk for a slightly better return.

    Hope that all makes sense
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    Yes I do understand and wasn't implying you were literally going to lose the £3k or were happy with the idea of losing it.

    Just an observation that while you do now have some better accounts, there are always more to look at, and once you've got done with them, there are other things like traditional investment funds. There's a whole range of risk and returns.

    So for example I'd rather stick £5k in Santander at 3% and get my £150 a year completely instant access, than put £5k in P2P at 5%, have to parcel it up into 100 chunks, accept that 2 of them could go bad, costing me 2%, back at the net return where Santander would be guaranteeing it... And then the hassle of the loans getting paid off, so every month I have to go out and recycle the money into more long term loan commitments so that the money which is "at work" doesn't reduce in value too much too fast. Really can't be bothered with the extra risk and hassle to get a couple of potential percent.

    Up at 8% or 9%, the potential profit in excess of the risk free Santander rate is more interesting. But the risks are higher and it requires more thought, the secondary market might not be so liquid, etc etc.

    I'm currently getting something like 6.5% on Lloyds pref shares - there's real risk of capital loss cancelling out the income if base rates rise too fast or the bank comes across hard times, but a well established business and the dividends fit into an ISA or the new dividend tax allowance and you can sell in the market quite easily at the moment

    Not a recommendation but just an observation - once you start looking beyond normal bank accounts for extra risk and extra return, there's plenty of places to go besides P2P.
  • N1AK
    N1AK Posts: 2,903 Forumite
    Part of the Furniture 1,000 Posts
    Dan83 wrote: »
    Hi,

    After reading another thread on peer to peer lending, I've joined an other site, not invested yet.

    The site in question is saving stream.

    Reading the advertising pitch about Having a fund ( can't remember their term for it) basically to really any bad debt, so the lender doesn't loose out.

    Has anyone actually lost money through a bad loan on here, I've read the news paper stories, but not ever spoke to any one has lost out.

    Don't need to know how much you lost and all that, I'm just interested if they really do pay out like they say the fund is for.

    Thanks

    I had a considerable amount of bad debt with Funding Circle before I turned off auto-investment; it never meant I actually went below the amount invested but there was a period of nearly a year where all interest was wiped out by fees and bad debt. FC has no provision fund so obviously they didn't pay out.

    Ratesetter operates a provision fund and thus far it has covered all bad debt. That said, the way Ratesetter works you have no idea who you are lending to, which loans default etc.
    Having a signature removed for mentioning the removal of a previous signature. Blackwhite bellyfeel double plus good...
  • N1AK
    N1AK Posts: 2,903 Forumite
    Part of the Furniture 1,000 Posts
    bowlhead99 wrote: »
    So for example I'd rather stick £5k in Santander at 3% and get my £150 a year completely instant access, than put £5k in P2P at 5%, have to parcel it up into 100 chunks, accept that 2 of them could go bad, costing me 2%, back at the net return where Santander would be guaranteeing it... And then the hassle of the loans getting paid off, so every month I have to go out and recycle the money into more long term loan commitments so that the money which is "at work" doesn't reduce in value too much too fast. Really can't be bothered with the extra risk and hassle to get a couple of potential percent.

    I think you'd struggle to find a p2p lending platform where even fully automated lending returns as low as 5% without a provision fund on long term lending. There's nothing wrong with questioning the value of p2p funding, but if you don't know the market well enough to use realistic figures or know it well enough that you know those figures are unrealistic it undermines your credibility.
    Having a signature removed for mentioning the removal of a previous signature. Blackwhite bellyfeel double plus good...
  • Maelwys
    Maelwys Posts: 146 Forumite
    edited 16 February 2016 at 4:55PM
    Dan83 wrote: »
    When my current loan finish in funding circle, currently 1-2 months, I'll be switching over to saving stream and give that ago.

    I'm currently invested with Ablrate, Savingstream, Moneything and Rebuildingsociety.

    The first three are "secured" P2P investment sites, meaning that the loan is secured against something physical rather than just a promise of repayment. And I'd recommend secured P2P investments providing that the investor is savvy enough to grasp the inherent risks and has enough money set aside in bank accounts or regular savings to be able to cope with any losses from those investments.

    There are really two risks in P2P lending. The first risk is that the loans you support with your investments go into default. The second risk is that the trading platform you use to make investments goes bust.

    You can address the first by diversification of investments within each platform, and you can address the second by diversifying across multiple reputable platforms.

    Of those three sites I listed above, Savingstream is probably the "safest" given that it's a (comparatively) big platform, the investments appearing on it are fairly decent LTV and it has a large provision fund... that said, the investments available on it are almost exclusively property deals. Ablrate is another big platform focussed almost exclusively on transportation deals - planes and shipping containers. Moneything is smaller but more diversified - paintings, cars, jewelry, electronics and property all feature, as do prepackaged "managed" loan baskets. All three sites offer similar levels of return (12% on Savingstream, 12-13% on Moneything and 10-14% on Ablrate)

    (Rebuildingsociety is basically raw P2P between lenders and requesters, with higher interest rates but greater risks of default. What sets it apart from other unsecured P2P sites is the high rate of return and the fact that you're lending to companies rather than to individuals. Its loans are usually backed up by an "All Assets Debenture" and "Directors Guarantee" rather than secured on physical items or property. The extra risk and higher rate of default is offset by an average return rate of 18-19%)

    To give you a rough idea of investment-to-default ratio: I currently have around 60 different loans total. 30 are split across Ablrate, Savingstream and Moneything, and another 30 are on RebuildingSociety. So far I've had only one loan go into default across all of those - which was on Rebuildingsociety (although three more on it have been struggling recently and are currently on interest-only repayments).

    I'm not sure I could in good conscience recommend Rebuildingsociety for investment purposes to anyone new to P2P... but the discussion threads on the loans are pure gold from a learning curve (and sometimes entertainment) point of view - pick any loan that's behind on repayments and you'll read first hand the difficulties encountered by borrowers and the frustrated ventings of lenders... :rotfl:

    Savingstream, Ablrate or Moneything on the other hand? As long as you're sufficiently diversified it's pretty much invest-and-forget until a loan gets fully repaid. And if you need the money out in a hurry there's always the secondary markets - selling a loan part is usually if not instant then the same day... and asking to withdraw money from the platform should see it hit your bank account next working day.
  • N1AK wrote: »
    I had a considerable amount of bad debt with Funding Circle before I turned off auto-investment; it never meant I actually went below the amount invested but there was a period of nearly a year where all interest was wiped out by fees and bad debt. FC has no provision fund so obviously they didn't pay out.

    Ratesetter operates a provision fund and thus far it has covered all bad debt. That said, the way Ratesetter works you have no idea who you are lending to, which loans default etc.


    With Funding Circle I only go for the A+ rated loans and preferably asset backed. I've not used autobid.


    I've mentally restricted myself to a max of 1000 per platform due to the lack of FSCS style protection. Hopefully that'll be the next step for P2P after inclusion in the IFISA. I'll wait til then before I commit any larger sums. That said, there are some on here who have 30k+ in P2P. Not sure what % of their total portfolio that is though. I'm at just under 3% and i'm comfortable with that.
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