Ratesetter - 1yr Market

Knapper

Anyone here using Ratesetter and specifically the 1yr market?


I have an issue with that market and need to understand if it's just me that doesn't understand it.


With the rolling market you can put money in, remove it anytime and the capital and interest payments the borrowers make along the way are paid to you at regular intervals and you have the option to re-invest them back into the market or to dump them in your holding account. It obviously makes sense for most people to have all the money constantly re-invested earning more interest.


With the 1yr market however things are different, at least for the LENDER.


In the 1yr market there ARE NO regular payments passed to you (capital and interest). Instead you just get one complete lump sum payment AT THE END of the 1yr term (capital and interest). I find this somewhat disingenuous on the part of RateSetter and a bit of a con.


Surely (and do correct me if I am wrong), but surely the money people LEND in that market could be matched to all manner of borrowers' loans. Maybe it's a new 1yr loan, maybe it's the back-end final year of a former 5yr loan that someone else has sold out of.


Either way SURELY those borrowers in ALL cases are going to be making regular capital and interest payments to Ratesetter are they not? Or is it really the case that borrowers can borrow money for 1yr and not have to pay back anything at all until right at the end of the loan when the pay it all back in one lump sum?


I really can't believe that can be the case. If true, then what this means is that people lending money in the 1yr market are missing out on the ability to re-invest the monthly capital and interest payments in the rolling market.


Ratesetter offer no option for lenders to do this. What that then must mean, is that borrowers ARE repaying their loans every month and those payments (capital AND interest) are going into the Ratesetter coffers where they are likely being re-invested for RS's benefit.


This seems quite wrong to me and somewhat of a con. Why shouldn't the lenders in that 1yr market receive the monthly payments and have the choice of whether to auto re-invest them in the rolling market or have them put into their holding accounts?


Have I misunderstood something?


Thanks in advance

soulsaver

Do you get the interest rate (you agreed) for the loan while it's in existence?
edit: See more info in follow-on post below.

firestone

i guess technically you could be right about a small gain to RS from monthly payments but don't forget they have to cover their fee's,the percentage going in the provision fund etc.and presumably the payments are accruing to pay at the end
At the end of the day you invest at a better fixed rate for a year and get the rate till the end the same as a BS/Bank One year bond(who may also earn on your money over the year within their business).
Surely unless you want a monthly income its better then trying to compound your money every month?
Checking the blog feature on the home page does bring up a recent post on changes to the rolling market and how loans are used etc

soulsaver

Further to my short reply (busy):

That's not how the one year market works.

RS do collect instalments in the 5 year and invest them as per your reinvestment instructions.

Have you set your reinvestment instructions to rolling market?

Have you set notifications to tell you it's happening?

When logged in, go to 'your lending' page; on the left hand side 'transactions'/month/show and will be able to see instalments accrued and lend orders placed assuming you're set-up to reinvest .

Knapper

soulsaver wrote: »

Further to my short reply (busy):

That's not how the one year market works.

RS do collect instalments and invest them as per your reinvestment instructions.

Have you set your reinvestment instructions to rolling market?

Have you set notifications to tell you it's happening?

When logged in, go to 'your lending' page; on the left hand side 'transactions'/month/show and will be able to see instalments accrued and lend orders placed assuming you're set-up to reinvest .

You mis-understand the 1yr market Soulsauce I believe. In the 1yr market you don't get any payments of any kind UNTIL THE 1 YR TERM IS COMPLETE. So there is literally nothing to re-invest, until of course the 1yr is up and then you can choose what to do with the lump sum capital and interest. As I said earlier this is in reality very poor. I feel certain that during the year, the borrowers ARE repaying their debt on a monthly basis, capital and interest. That money MUST therefore be going into RS coffers even though it is technically my money. They WILL give me that money at THE END of the year but not before. Thus meanwhile they will presumably be investing it themselves throughout the year. Really, I, the actual lender should have access to those payments so that I can re-invest them as the year progresses. That would make a difference to the overall interest I make in total.

firestone

Bit confused - if using the transaction tab on lending 1 year for repayments details surely it will only show final payments and interest (or early repayments and interest) and where the reinvestment has gone? But not sure what instalment's means

bowlhead99

Knapper wrote: »

You mis-understand the 1yr market Soulsauce I believe. In the 1yr market you don't get any payments of any kind UNTIL THE 1 YR TERM IS COMPLETE. So there is literally nothing to re-invest, until of course the 1yr is up and then you can choose what to do with the lump sum capital and interest. As I said earlier this is in reality very poor.

It's not 'very poor'. You commit to give them the funds for lending on the understanding you can't get it back until a certain date" ("until the 1 year term is complete", as you shouted above). In exchange for being a lender without getting the money back for the year, they give you a higher interest rate than the rolling monthly-paying market.

Similarly if you put money in a fixed 1 year term bank account you may not get any interest until the end.

Effectively they are looking to offer you a risk based fixed term investment product, on terms you will recognise from non-risk based fixed term cash deposit products at your local bank.

If you want or need monthly access to the funds generated, you could use the rolling monthly market but the interest rate you can get on that will be lower.

I feel certain that during the year, the borrowers ARE repaying their debt on a monthly basis, capital and interest. That money MUST therefore be going into RS coffers even though it is technically my money.

You agreed to give the money to them for lending purposes and not wanting it back for up to a year (unless the borrower chooses to repay earlier), in exchange for an interest rate you wanted to get. It's a market and you picked the term and the rate.

Really, I, the actual lender should have access to those payments so that I can re-invest them as the year progresses. That would make a difference to the overall interest I make in total.

You agreed not to get the money back until the end of the year, for a fixed rate.

So for example (made up numbers)put £1000 for a year at contracted rate of 5% per year. So after a year you get £50 of interest. What you are saying is you would prefer that after half a year you would like to get whatever interest had accrued at whatever interest rate up to that point, take it out of the product, then reinvest it yourself in the rolling market (which is perhaps paying only 3% a year instead of 5% a year) for the rest of the year.

You are not 'missing out' if they pay you whatever rate you negotiated on day one. There will be investors using the product as an alternative to a one year term deposit with a bank, and they would be disappointed if they got some of the money out early and had to reinvest it themselves in a more liquid (perhaps lower interest rate) product to keep earning on it. When with the 'pay at the end' model, they keep earning interest on all the money for the whole year, at the agreed rate?

Prism

Knapper wrote: »

Either way SURELY those borrowers in ALL cases are going to be making regular capital and interest payments to Ratesetter are they not? Or is it really the case that borrowers can borrow money for 1yr and not have to pay back anything at all until right at the end of the loan when the pay it all back in one lump sum?

What you are missing is that Ratesetter does provide loans to borrowers that you only repay interest and capital at the end of the 1 year period. These are property and asset loans typically. A recent blog post stated that these types of loans are very popular with borrowers. The 1 year market currently funds these loans. They are in the process of also including these loans in the rolling market. The interest rate of these loans is typically higher.

firestone

since last month One year loans have been added to rolling this within transactions shows as having interest accrued until paid when its changed to interest received so not sure they are hiding anything

soulsaver

firestone wrote: »

Bit confused - if using the transaction tab on lending 1 year for repayments details surely it will only show final payments and interest (or early repayments and interest) and where the reinvestment has gone? But not sure what instalment's means

Sorry - in the 5 year market capital & interest is repaid in instalments - ie monthly and reinvested as per your instructions.

I looked at my account again and all my repayments were all from the 5 year and reinvested as per my instructions - none were from the one year which I also hold.

I'm happy enough with that as
A) As Bowlhead pointed out, that is what I signed up for.
I also signed up for an interest rate and as long as I achieve that, I'm happy - it's like a one year deposit in a bank albeit with less protection, of course.

soulsaver

Knapper wrote: »

You mis-understand the 1yr market Soulsauce I believe. In the 1yr market you don't get any payments of any kind UNTIL THE 1 YR TERM IS COMPLETE. So there is literally nothing to re-invest, until of course the 1yr is up and then you can choose what to do with the lump sum capital and interest. As I said earlier this is in reality very poor. I feel certain that during the year, the borrowers ARE repaying their debt on a monthly basis, capital and interest. That money MUST therefore be going into RS coffers even though it is technically my money. They WILL give me that money at THE END of the year but not before. Thus meanwhile they will presumably be investing it themselves throughout the year. Really, I, the actual lender should have access to those payments so that I can re-invest them as the year progresses. That would make a difference to the overall interest I make in total.

Actually, Kipper, you misunderstood my reply, although on a re read I can see why: I've ETA 'on a 5 year' to clarify.