p2p Lending - opinions?

itwasntme001

Aceace said:

itwasntme001 said:

Aceace said:

itwasntme001 said:

123mat123 said:

Why would you want to lend to people and companies the banks (the professionals) refuse to lend to.  
On Ratesetter you can see the rates borrowers pay. Typically late teens early 20s.  These are desperate people. Why would you want to loan to them.
On Funding Circle you can see the purpose of the loan. Its not uncommon to see 'paying tax bill'.  If you don't pay your tax you go to prison. If you don't pay p2p you get a few stinky letters. 
I left Ratesetter,  growth street, fc, lending works and AC earlier this year when Lending Works suddenly reduced investor rates RETROSPECTIVELY. ie you signed up for say 6% for 5 years but after the change for the first couple of years  interest was worked out at say 1% and  for the last couple  of years at 9% (so average was indeed 6% if you held for term)....   but if you pulled out early you only get the 1% (plus the expected withdrawal fee)
This kind of shoddy behavior may be legal and covered in small print but it made me realise how these companies can operate...
There is a dedicated forum for p2p. Take a look you'll see lots of  unhappy and poorer people mosyly full of regret! 


 

This is what any prospective P2P lender should read.  Frankly if you are not trained in analyzing credit risk you should stay well clear of P2P.  It is not designed for retail investors.  I am ashamed at the FCA and those responsible in other areas of government for allowing P2P to be marketed at retail investors for so long.

There is another side to P2P that I have not seen being mentioned.  It is creating a lot of mis-allocation of capital.  When you lend to businesses and people, to those who are not credit worthy at all, you delay the inevitable.  It is very irresponsible to maintain these zombie entities as you are denying the credit worthy from using this capital in a more productive manner that would be more beneficial for the economy as a whole.

P2P was specifically designed for retail customers. By your logic, should retail customers be prevented from saving above FSCS protected limits? Should retail investors be prevented from investing in shares? 

I believe the FCA have been shown to be sadly lacking in their duty to protect investors from some of the crooks that have operated in the P2P space, but i don't see why I shouldn't be able to risk my own money in P2P. I'm happy to lend on professional and competent P2P platforms where I feel that I understand the risk I'm taking on. I don't feel that I need to be trained in analysing credit risk any more than I do when investing in shares through collective funds.

You can not compare P2P to single shares or above FSCS limit deposits.  With single company shares, it is commonly known that investing in these can be very risky if outsized positions are taken.  Retail investors know what they are getting themselves into.  Similarly with depositing more than the FSCS limit with a single bank.

With P2P, most people seem to look at the headline rates being offered and think "sure there is some risk I am taking, but these are loans that, if defaulted on, can have repurcussions on the borrowerer so it is very unlikely I will lose any of my capital and so that 5% looks so good compared to my silly bank offering just 0.7% for my precious savings".  What these retail investors seem to be missing is that platforms can fail, loans can very much default (without significant repurcussions on the borrowerer) and unforseen events can result in your money being locked away for 5 years with the real possibility of capital losses.  Crucially, they also miss the fact that the borrowers who can not get credit from a bank will end up borrowing via a P2P platform.  Investors are lending to the subprime and super subprime of the personal loan and business loan market.  In summary, investors think its just a slightly risky form of a savings account.

Furthermore, you have widely available information for most single name stocks that retail investors would want to invest in.  You do not have nearly enough information for P2P loans and much of it is likely to be biased to make the loans appear to be worthy of making.  Single name equities have market prices quoted and thus can readily be liquidated.  P2P lending has no such mechanism in place for the most part.  The ability to only buy loans at par on the seconary market is absurd.  Credit specialist skillsets are certainly required to make informed decisions on whether a credit is worth investing in.  Assuming all the information was available about borrowers and only credit specialists were able to lend, you would find many of the loans not being filled.

I agree with much of what you've said here. They are well reasoned arguments that apply to some, if not many,  P2P platforms. In fact I agree with all of it in relation to some sub-sectors of P2P. The likes of the big 3 (FC, Zopa and RS) are indeed lending to sub-prime borrowers. They are simply playing the numbers to calculate that the large numbers of defaulters can be more than compensated for by charging higher rates to those that do pay back. You either trust them to make those credit risk calculations or not, personally I don't. 

However, there are some competent and professional P2P lenders that are experts in their sectors that are not necessarily lending to sub-prime borrowers. If you take the likes of CrowdProperty for instance, some borrowers choose to borrow through them because they offer a better service than major banks,  particularly when it comes to speed of access to funds. They're experts at what they do and can offer assistance and advice to borrowers when needed. IMO, given their record so far, the platform risk with them is relatively low. Of course lending through them is not risk free, but, again IMO, they offer an acceptable return for the risk being taken.

There are many more examples of professional P2P platforms that offer reasonable investment risks as part of a diversified investment portfolio. It's simply not fair to tar them all with the same brush. 

There may be some P2P platforms with adequate underwriting standards, controls in place to mitigate platform failure risk and strict procedures for claims against borrowers in the event of defaults.  The question is how do the vast majority of retail investors determine which of the platforms have these attributes?

You may have the skills but the vast majority do not have the skill set for identifying the good platforms from the bad.  In fact it is the bad platforms you mention that the retail investors are most likely going to flock to, mainly due to the marketing employed by these same platforms.  The next question is is there any research, genuinely unbiased, that can help with answering whether a platform is good or not.  I have not seen anything but you may have?  The research needs to have a good track record so should have highlighted the risks of the common bad platforms you mention in advance to their failings in recent years.

What % of the total number of platforms are good in your opinion?  What qualifies you in being good at determining the good from the bad?  Is it really worth retail investors time and capital to research these things?  How do you know if the good platform won't turn into bad (perhaps by the incentive to write more bad loans in the effort to try gain more market share)?

It all seems like a lot of effort for not very much reward, with a very real likelihood of significant capital losses.

Aceace

itwasntme001 said:

Aceace said:

itwasntme001 said:

Aceace said:

itwasntme001 said:

123mat123 said:

Why would you want to lend to people and companies the banks (the professionals) refuse to lend to.  
On Ratesetter you can see the rates borrowers pay. Typically late teens early 20s.  These are desperate people. Why would you want to loan to them.
On Funding Circle you can see the purpose of the loan. Its not uncommon to see 'paying tax bill'.  If you don't pay your tax you go to prison. If you don't pay p2p you get a few stinky letters. 
I left Ratesetter,  growth street, fc, lending works and AC earlier this year when Lending Works suddenly reduced investor rates RETROSPECTIVELY. ie you signed up for say 6% for 5 years but after the change for the first couple of years  interest was worked out at say 1% and  for the last couple  of years at 9% (so average was indeed 6% if you held for term)....   but if you pulled out early you only get the 1% (plus the expected withdrawal fee)
This kind of shoddy behavior may be legal and covered in small print but it made me realise how these companies can operate...
There is a dedicated forum for p2p. Take a look you'll see lots of  unhappy and poorer people mosyly full of regret! 


 

This is what any prospective P2P lender should read.  Frankly if you are not trained in analyzing credit risk you should stay well clear of P2P.  It is not designed for retail investors.  I am ashamed at the FCA and those responsible in other areas of government for allowing P2P to be marketed at retail investors for so long.

There is another side to P2P that I have not seen being mentioned.  It is creating a lot of mis-allocation of capital.  When you lend to businesses and people, to those who are not credit worthy at all, you delay the inevitable.  It is very irresponsible to maintain these zombie entities as you are denying the credit worthy from using this capital in a more productive manner that would be more beneficial for the economy as a whole.

P2P was specifically designed for retail customers. By your logic, should retail customers be prevented from saving above FSCS protected limits? Should retail investors be prevented from investing in shares? 

I believe the FCA have been shown to be sadly lacking in their duty to protect investors from some of the crooks that have operated in the P2P space, but i don't see why I shouldn't be able to risk my own money in P2P. I'm happy to lend on professional and competent P2P platforms where I feel that I understand the risk I'm taking on. I don't feel that I need to be trained in analysing credit risk any more than I do when investing in shares through collective funds.

You can not compare P2P to single shares or above FSCS limit deposits.  With single company shares, it is commonly known that investing in these can be very risky if outsized positions are taken.  Retail investors know what they are getting themselves into.  Similarly with depositing more than the FSCS limit with a single bank.

With P2P, most people seem to look at the headline rates being offered and think "sure there is some risk I am taking, but these are loans that, if defaulted on, can have repurcussions on the borrowerer so it is very unlikely I will lose any of my capital and so that 5% looks so good compared to my silly bank offering just 0.7% for my precious savings".  What these retail investors seem to be missing is that platforms can fail, loans can very much default (without significant repurcussions on the borrowerer) and unforseen events can result in your money being locked away for 5 years with the real possibility of capital losses.  Crucially, they also miss the fact that the borrowers who can not get credit from a bank will end up borrowing via a P2P platform.  Investors are lending to the subprime and super subprime of the personal loan and business loan market.  In summary, investors think its just a slightly risky form of a savings account.

Furthermore, you have widely available information for most single name stocks that retail investors would want to invest in.  You do not have nearly enough information for P2P loans and much of it is likely to be biased to make the loans appear to be worthy of making.  Single name equities have market prices quoted and thus can readily be liquidated.  P2P lending has no such mechanism in place for the most part.  The ability to only buy loans at par on the seconary market is absurd.  Credit specialist skillsets are certainly required to make informed decisions on whether a credit is worth investing in.  Assuming all the information was available about borrowers and only credit specialists were able to lend, you would find many of the loans not being filled.

I agree with much of what you've said here. They are well reasoned arguments that apply to some, if not many,  P2P platforms. In fact I agree with all of it in relation to some sub-sectors of P2P. The likes of the big 3 (FC, Zopa and RS) are indeed lending to sub-prime borrowers. They are simply playing the numbers to calculate that the large numbers of defaulters can be more than compensated for by charging higher rates to those that do pay back. You either trust them to make those credit risk calculations or not, personally I don't. 

However, there are some competent and professional P2P lenders that are experts in their sectors that are not necessarily lending to sub-prime borrowers. If you take the likes of CrowdProperty for instance, some borrowers choose to borrow through them because they offer a better service than major banks,  particularly when it comes to speed of access to funds. They're experts at what they do and can offer assistance and advice to borrowers when needed. IMO, given their record so far, the platform risk with them is relatively low. Of course lending through them is not risk free, but, again IMO, they offer an acceptable return for the risk being taken.

There are many more examples of professional P2P platforms that offer reasonable investment risks as part of a diversified investment portfolio. It's simply not fair to tar them all with the same brush. 

There may be some P2P platforms with adequate underwriting standards, controls in place to mitigate platform failure risk and strict procedures for claims against borrowers in the event of defaults.  The question is how do the vast majority of retail investors determine which of the platforms have these attributes?

You may have the skills but the vast majority do not have the skill set for identifying the good platforms from the bad.  In fact it is the bad platforms you mention that the retail investors are most likely going to flock to, mainly due to the marketing employed by these same platforms.  The next question is is there any research, genuinely unbiased, that can help with answering whether a platform is good or not.  I have not seen anything but you may have?  The research needs to have a good track record so should have highlighted the risks of the common bad platforms you mention in advance to their failings in recent years.

What % of the total number of platforms are good in your opinion?  What qualifies you in being good at determining the good from the bad?  Is it really worth retail investors time and capital to research these things?  How do you know if the good platform won't turn into bad (perhaps by the incentive to write more bad loans in the effort to try gain more market share)?

It all seems like a lot of effort for not very much reward, with a very real likelihood of significant capital losses.

Again, you make some very good points. I'm sure that there are good P2P platforms out there that are suitable for almost all investors, but you make an excellent point about it being difficult for nubies to determine the good from the bad. I hadn't really considered this point before. P2P has become a major hobby for me. I took early retirement 5 years ago, so suddenly had plenty of time on my hands. Having always had a keen interest in personal finance, and having a cash pile to manage to see me through until my pensions kick in I discovered P2P and became very interested in how I could make use of it to achieve my aims. I spent around a year doing research on various platforms and following P2P forums before taking the plunge. This would obviously be far too much work for someone who didn't consider it to be a thoroughly enjoyable hobby.

In short, I don't really have a satisfactory answer for "where does someone find unbiased research on which platforms are good?". A couple of sources that spring to mind are Brismo and 4thway, but they don't fully satisfy your question. I've found forums to be a great source of useful information and help when doing research,  particularly p2pindependentforum and specifically from posters who share their DD on platforms and individual loans, but it takes a lot of time to be able to sort the wheat from the chaff. It becomes much easier once you learn who's opinions to trust, but again that takes time, and you still need to check the info for yourself. 

As for "What % of the total number of platforms are good in your opinion?" - I keep notes on each platform that I have invested in (currently 29), and I currently consider 12 of those to be worthy of further investment, so that would be roughly 40%. However, there are probably around the same number again of platforms that I've been interested enough to do some research on but have decided not to invest. I don't keep records of rejected platforms, but that would take the percentage of platforms I consider to be good to be nearer to 20%. So, I guess my conclusion would have to be that it's essential that anyone wanting to invest in P2P does do some research first, but that really applies to all investment classes. Again, I do take your point that there are far more resources available for other investment sectors. Hopefully this will improve for P2P as it becomes more mainstream.

As for "What qualifies you in being good at determining the good from the bad?" - The answer; absolutely nothing. I'd be horrified if I thought that anyone would make any investment purely on the say-so of some nobody on an Internet forum. I've benefited greatly from the opinions and research of others (including yours right now as you're making think hard about things I've taken for granted), so I'm happy to spend time answering posters' questions and offering my personal opinions when I think they may be of use. 

Now for "How do you know if the good platform won't turn into bad (perhaps by the incentive to write more bad loans in the effort to try gain more market share)?" - You're right again that this is a real risk that's happened on more than one platform already. The answer for me is to keep abreast of what's happening on the platforms I use, primarily through forums and the P2P press. I accept that this would currently be too onerous for many.  This has allowed me to largely escape platforms that have turned bad. I still have a small investment trapped in Lendy that was an embarrassing mistake on my part. It was a platform that some posters were raving about, so I added a very small amount of funds in order to test it from the inside without really understanding the contracts first. Oops!

As for your last point "It all seems like a lot of effort for not very much reward, with a very real likelihood of significant capital losses." I find myself both agreeing and disagreeing here. Yes,  I spend a lot of time on my P2P hobby,  but I've found it both very enjoyable and profitable so I'm happy to do that. If the platforms are chosen carefully then I can't agree that the likelihood of capital losses is high, but that just takes us back to the "how to select a platform" point that I've pretty much conceded is a bit tricky.

Oh dear, you seem to have won many of the discussion points here! I still don't think that retail investors should be prevented from investing. I'd be much the poorer if I weren't allowed to do so, and I'm not a fan of the nanny state. I do think the FCA should do much better at protecting retail investors from the incompetent platforms and the blatent crooks though. I also think the P2P sector will eventually become mainstream which will lead to more reliable and independent resources becoming available, though I expect this will be hampered by the fact that is difficult for IFAs to make as much from P2P as they can from other investments. Thanks for the interesting discussion and for making me think. 😊 

Ciprico

And write....!

agent69

agent69 said:

123mat123 said:

Why would you want to lend to people and companies the banks (the professionals) refuse to lend to. 

 Once you've been had a few times with an asset that was conservatively valued at £250k being sold for £75k ........

A collection of Jam memorabilia just sold off by administrators to settle a RS loan.

• loan value - £102k
• assets originally valued at £300 - £400k
• sold at auction for £60k
  

grumiofoundation

agent69 said:

agent69 said:

123mat123 said:

Why would you want to lend to people and companies the banks (the professionals) refuse to lend to. 

 Once you've been had a few times with an asset that was conservatively valued at £250k being sold for £75k ........

A collection of Jam memorabilia just sold off by administrators to settle a RS loan.

• loan value - £102k
• assets originally valued at £300 - £400k
• sold at auction for £60k
  

That’s a sticky situation alright. 

Aceace

grumiofoundation said:

agent69 said:

agent69 said:

123mat123 said:

Why would you want to lend to people and companies the banks (the professionals) refuse to lend to. 

 Once you've been had a few times with an asset that was conservatively valued at £250k being sold for £75k ........

A collection of Jam memorabilia just sold off by administrators to settle a RS loan.

• loan value - £102k
• assets originally valued at £300 - £400k
• sold at auction for £60k
  

That’s a sticky situation alright. 

Yes, must have been less well preserved that originally thought! 

CharllieSays

I think I've been lucky. I've had most of my money with LendInvest for the last 3.5 years (along with a couple of other P2P platforms). LendInvest don#t appear to have been affected by the lockdown all that much. There was a period of 4-5 months where fewer investments were listed on the site. So I guess they were being very picky about who they lent to. But since maybe August/September, things have picked up again and I'm getting 6-7% on my portfolio. Never had any issues taking money out, even during the peak of the pandemic. Ratesetter and Funding Circle both essentially froze payments, but LI has kept going.

itwasntme001

I was in P2P a few years back.  Exited it completely a couple of years ago.  My advice to anyone thinking about it is just don't bother.  There is a good reason why it exists and its something about the borrowers usually being very crap and P2P lenders being mugs.

Aceace

CharllieSays said:

I think I've been lucky. I've had most of my money with LendInvest for the last 3.5 years (along with a couple of other P2P platforms). LendInvest don#t appear to have been affected by the lockdown all that much. There was a period of 4-5 months where fewer investments were listed on the site. So I guess they were being very picky about who they lent to. But since maybe August/September, things have picked up again and I'm getting 6-7% on my portfolio. Never had any issues taking money out, even during the peak of the pandemic. Ratesetter and Funding Circle both essentially froze payments, but LI has kept going.

Hi Charlie, you're brave posting about P2P on this forum. I'm a big fan, but my views aren't shared by many on here. It's interesting to hear about LI. They're not one of the 30 platforms I've tried so far. I think I was discouraged when I looked at them a while back, partly due to not being able to wrap the investment in an ISA, and partly due to the £5k minimum investment. I like to test a platform out with seed money for a while before investing larger sums. I might take another look. 

If you're interested in diversifying the funds from your RS and FC accounts and like LI, you might like to take a look at Loanpad (lower risk and easier access, but lower rates) or CrowdProperty (higher rates than LI). Both offer IFISAs, both allow lower starting investments and both have ridden through the covid crisis without issues. Both are firmly in my top 5 favourite platforms list.