Peer-to-peer lending sites: MSE guide discussion

jamesd wrote: »

Ablrate is typically offering 10-12%, it seems, for loans secured on physical assets like aircraft and plant. There are other good options out there, the P2P Independent Forum has lots more on this subject and if you're taking P2P seriously you should visit the place and learn more rather than just using the best known names.

I'll certainly look into it

For me the biggest risk seems to be platform risk ... Funding Circle is just a platform to connect you with borrowers - they could be the same borrowers you'd find on any other platform

But as with any new paradigm, I expect a lot of the smaller platforms will dissolve - leaving one or two large platforms controlling the market ... As happened with Amazon, eBay, Facebook, and just about anything online

Funding Circle is as well regulated and scrutinised as the other big two platforms, while when I look up things like Thin Cats, I find very little impartial information

It also handles 10s of £millions of government investments ... For me, the platform is what you're really investing in, because you don't want to be stuck with 5 year loan repayments on a platform that's not going to stick around and ensure you get them

Ryan_Futuristics wrote: »

You're doing your maths in a silly order .

You don't seem to understand that this is the way it works for the vast majority of people. Income tax gets deducted on the whole of your interest earned before bad debt is considered. The higher the rate of tax you pay the more important it is to only invest in the low risk loans.

Hopefully this will get changed in the budget. Also (hopefully) we will be getting a P2P ISA by the third quarter of next year, assuming it doesn't get chopped by whoever wins the next election.

In the majority of cases platform risk shouldn't be an issue because you are lending direct to the person / business, not to the platform. I believe that the latest regulations brought in by the government strengthened the requirement for lenders to continue receiving payments if the platform goes t*ts up.

Ryan_Futuristics wrote: »

Here's what a lot of investors don't realise:

Unlike peer to peer lending where individuals lend to other individuals, relief from Capital Gains Tax may be available on loans which become irrecoverable at Funding Circle.

Yes, but as others have pointed out above, there aren't many of us who have capital gains tax liability year after year, so this is a largely worthless relief. Hopefully it will get sorted. I fancy investing in P2P but I'll hold off until it's ISA-able.

I see FC demonstrate their estimated return calculation here:

https://www.fundingcircle.com/investors/current-estimated-return

Ryan_Futuristics wrote: »

The way I understand it is tax on unrecoverable loans *is* taxed as capital gains ... But an unrecoverable loan can be classed as an allowable capital loss ...?


Personally my predicted earnings across most risk bands are 8.8%, so it may make sense to un-tick the C (maybe even bands, and keep defaults bellow 1.6%

The other thing of course is defaults aren't immediate - the 5% figure may involve a loan that's been 90% repaid first (as they're repaid monthly) ... So I assume simply subtracting the default rate from the income doesn't give you a proper total, and makes the issue look much worse than it is


The perspective I think people need is that these are junk bond yields with almost no known risk to capital (we're worrying about a theoretical worst case in which you only return 1.7% after tax)

That wouldn't even be a memorably bad year for plenty of bond funds

You continue to peddle misinformation as fact. If we look at some of the statements you have made in this thread:


On Funding Circle, you're not actually liable to pay tax on bad debt – yes you are


Funding Circle loans go from 1 year to 5 years, but with all of these you can withdraw cash at any time for a small fee – no you can’t. Getting your money out of a P2P platform is something you need to consider before you start lending. You can only sell your FC loan parts for a small fee if you can find somebody to buy them at par. If you’re buying A+ using autobid at 8.8%, there’s no way they will sell at par, because there are pages of other A+ loans on offer at far higher rates. You will need to discount them to achieve a sale and this will result in a loss.


You're doing your maths in a silly order – no, I’m doing the maths in the order that the government requires


You've created a worst case scenario – no I haven’t. The 1.7% quoted is the average return for a higher rate tax payer who invests in a C- loan (based on RS estimated default rates)


You could just be left with hundreds of tiny outstanding loans and a long list of telephone numbers – No you won’t. Legislation brought in earlier this year requires platforms to have a procedure in place for the debts to be collected and disbursed by others if they go pop.


Savers risk big losses at peer-to-peer start-ups – the telegraph article is 16 months old and a lot of water has gone under the P2P bridge since then. I would have thought it was common sense that you don’t lend a shed load of cash to any unsecured company who has only just started operating.


FC defaults aren’t immediate – They can be. Some have defaulted without making a single payment, lots of others have defaulted after only one or two payments.


The 5% figure may involve a loan that's been 90% repaid first – no it doesn’t. The 5% is the FC estimate of the annual default rate for a C- loan. If you look on their site you will see that there are a separate set of default rates quoted for the whole life of the loan. These default rates can be in double figures.


So I assume simply subtracting the default rate from the income doesn't give you a proper total – yes it does. Best not to assume if you don’t know the facts.


These are junk bond yields with almost no known risk to capital – how do you work that out? I lent £40 to a scrap metal dealer who defaulted after one repayment. I lost £39 of my capital, and there is no prospect pf getting any of it back.


We're worrying about a theoretical worst case in which you only return 1.7% after tax – it’s not the worst case, it’s the average case. Some will do better, some will do worse.


You don't seem to know much about how Funding Circle works – I wouldn’t claim to be an expert, but I it looks like I might know a bit more than you.


It may make sense to un-tick the C (maybe even bands – I think this is the only thing we agree on

agent69 wrote: »

You continue to peddle misinformation as fact. If we look at some of the statements you have made in this thread:


On Funding Circle, you're not actually liable to pay tax on bad debt – yes you are

I don't think we've quite cleared that one up ... What I'm reading in that link is that unrecoverable business loans can be classified as allowable capital loss, and therefore not subject to capital gains tax

Re: selling loans - if I have to sell an 8.8% A+ loan for 7%, that's absolutely fine by me

Re: worst case scenario - 1.7% from a C- loan would be a scenario in which they'd all defaulted without making any repayments (and it's still better than a savings account)


As for the platform risk, my question is: Who's going to do the chasing when the platform's down and there's a lot of money to collect?

It's never happened before, so it's an unknown ... The businesses are legally obliged to continue making repayments, but you're not going to get debt collectors chasing up half a million £8 loans ... Trust that the government has set up such a robust system it could never fail us? ... You're alone on that one