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What is P2P lending good for? (Zola, mostly)

edited 30 November -1 at 1:00AM in Savings & Investments
24 replies 2.1K views
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  • agent69agent69 Forumite
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    when one needs one's capital back for living expenses or an unexpected emergency.


    If this is a potential scenario then P2P is definately not for you.
  • MalthusianMalthusian Forumite
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    jamei305 wrote: »
    I dipped my toe into Funding Circle a few years ago. It was surprising how many asset-backed guaranteed loans went bad, with assets turning out to be insufficient and guarantors going bankrupt.

    Not really. When you lend money based principally on what the borrower can invent about their financial position, with no meaningful attempt to verify whether any of it is true, it is not surprising when many of those loans go bust with little or no recoveries. It may surprise but it is not surprising.
  • ThrugelmirThrugelmir Forumite
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    jamei305 wrote: »
    I dipped my toe into Funding Circle a few years ago. It was surprising how many asset-backed guaranteed loans went bad, with assets turning out to be insufficient and guarantors going bankrupt.

    If the collateral on offer was adequate. The borrower would have had no problem obtaining finance from a convetional source at a far cheaper overall cost. The value of "assets" is subjective. In a firesale full value is rarely if ever achieved.
    “An investor who has all the answers doesn’t even understand all the questions.” - John Templeton
  • quirkydeptlessquirkydeptless Forumite
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    P2P, huh, yeah
    What is it good for?
    Absolutely nothing
    Say it again, y'all
    This is not investment advice.
    Your money may go "down and up and down and up and down and up and down ... down and up and down and up and down and up and down ... I got all tricked up and came up to this thing, lookin' so fire hot, a twenty out of ten..."
  • Zola.Zola. Forumite
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    Its good for me?
  • AlbermarleAlbermarle Forumite
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    If the collateral on offer was adequate. The borrower would have had no problem obtaining finance from a convetional source at a far cheaper overall cost.
    P2P comes in many guises and whilst the above statement is correct in many cases , it is a rather sweeping generalisation. For example many of the supposed SME's borrowing money are in fact very small and are really micro businesses. These do find it difficult to get finance from banks etc especially as the bank has to do a proper DD on them which is not worth their while . So P2P helps to fill a gap in the market , although with some risk to the Investors of course.
  • firestonefirestone Forumite
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    With Landbay by their figures being about 80% institutional money,The British Business Bank putting tax payers money through the likes of FC and BAE systems pension fund putting £200 million into P2P a couple of months back,maybe more people are in it then they realise
  • rupertsruperts Forumite
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    masonic wrote: »
    As you've found, P2P is not suitable for money you might need within the next 5 years. It can be useful as a diversifier to other high risk investments, for up to 5-10% of your investments. Loans do need careful selection because there are a lot of rogue borrowers and worthless assets out there. If you weed those out through due diligence then what you are left with a worthwhile return after bad debt. It's a lot of work though and I have been gradually reducing my exposure because of this.

    What's the diversification benefit considering P2P hasn't really been tested in an economic crash environment? If people are struggling to get their money back now in relatively mild conditions, it seems fairly safe to assume that there would be no negative correlation with other assets in a crash scenario.
  • masonicmasonic Forumite
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    ruperts wrote: »
    What's the diversification benefit considering P2P hasn't really been tested in an economic crash environment? If people are struggling to get their money back now in relatively mild conditions, it seems fairly safe to assume that there would be no negative correlation with other assets in a crash scenario.
    Zopa, and a few European P2P platforms, launched prior to the global financial crisis, so we have some insights into what might happen in an economic crash environment.

    You don't need negative correlation for there to be a diversification benefit, just low correlation. I also invest in private equity as a diversifier, as another example of an asset class that isn't negatively correlated, but has low correlation, with global listed equities.

    Part of the reason people are struggling to get their money back is that P2P is less liquid than it is perceived. The other part is irresponsible lending on the part of P2P platforms. Platforms have little incentive to turn away business when it isn't their money at risk. This reduces the returns achievable during the good times. The loss potential during the bad times will depend on the specific loans in which you are invested and what the assets securing those loans (if any) are worth in a fire sale. So people will have vastly different outcomes depending on their specific investment decisions, and those letting the platforms decide for them might end up amongst the worst off.
  • ThrugelmirThrugelmir Forumite
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    Albermarle wrote: »
    P2P comes in many guises and whilst the above statement is correct in many cases , it is a rather sweeping generalisation.

    I was responding to the particular comment made. Investing in start-up's and companies in early stages of development is a high risk activity. The failure rate speaks for itself. The question for investors is whether the potential return is adequate. Benchmarking against other available rates of return is not a basis on which the judgement should be made.
    “An investor who has all the answers doesn’t even understand all the questions.” - John Templeton
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