Peer-to-peer lending sites: MSE guide discussion

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  • Regular savings accounts do not pay the headline rate on the entire amount - the effective rate before tax is roughly half since you put in a little more each month up to the max. Peer to peer lending, when properly reinvested, needs a bit of rampup to ensure your entire funds are lent out, but they often pay out at the advertised rates less 1-5% bad debt. I had a good experience with Zopa, would certainly try them again when I have longer term funds to invest.
  • khris210
    khris210 Posts: 46 Forumite
    edited 28 November 2012 at 6:04PM
    A few figures might be of interest. I started in Jan 2011 with £1000 increased it to £1500 and then to £2000 currently. Difficult to work out but an average balance of £1000 in the first year and £1800 in the second year wouldn't be far out. My gross earnings have been £170.68 minus £23.18 fees minus £50.39 bad debts equals net earning of £97.11 over two years. The bad debts have all come in this second year, so the return in the first year was indeed about 8% gross,7.3% net, but in this second year after fees and losses it has been about 1.3%. I'm sorry but this is not good enough and I'm in the process of pulling my money out. Very disappointing.
  • Chorlie
    Chorlie Posts: 1,029
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    mr_jetlag wrote: »
    Regular savings accounts do not pay the headline rate on the entire amount - the effective rate before tax is roughly half since you put in a little more each month up to the max. Peer to peer lending, when properly reinvested, needs a bit of rampup to ensure your entire funds are lent out, but they often pay out at the advertised rates less 1-5% bad debt. I had a good experience with Zopa, would certainly try them again when I have longer term funds to invest.


    I agree the rate you get on the amount placed in a Regular Savers Account is about half the headline rate, however if I had £2k and had a 8% First Direct, 6% Nationwide & 5% Cheshire / Derbyshire Bs, I could place all the £2k within these account within 2 months (then continue to add to them each month), so I would get almost the headline rate 11.5/12ths and could increase it by placing the second months funds into 1 of my Lloyds Vantage 4% account.

    I can't workout the overall average rate over the year if I did the above (due to FD is £300, NW is £250 & Cheshire is £500 a month, so not a simple average of the rate) but I'd guess it would be around 6% some clever maths person will tell me the correct amount.
  • jamesd
    jamesd Posts: 26,103
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    edited 29 November 2012 at 6:37PM
    mr_jetlag, the effective interest rate for regular savers isn't half the rate, it's the full rate. You get that on all of the money in the account for as long as it's there. If you start out with a lump sum then you'd have some money in another account and would get some blend of the two rates. A potentially interesting combination for some is to take income from investments, including P2P investments, and use that to pay into regular saver accounts, then on maturity move the money from the RS into the investments and repeat.

    khris210, seeing bad debt increase over time is expected and you can expect the amount of bad debt to continue to increase, on average over all your borrowers. But your personal experience of it may level out or even drop if you happen to have been unlucky. The annualised figures for a bad debt allowance are annual interest rate allowances needed to cover bad debt but the actual percentage of loans that go bad are higher.

    Chorlie, the rates available from P2P lending vary. Now just happens to be a relatively low interest rate period for some of them. Was better early 2012 and it'll be better some time in the future as well. Just keep an eye on things and consider using them when the rates make sense for you. But do use your full ISA allowance first.
  • Chorlie wrote: »
    8% First Direct, 6% Nationwide & 5% Cheshire / Derbyshire
    ...
    I can't workout the overall average rate over the year if I did the above (due to FD is £300, NW is £250 & Cheshire is £500 a month, so not a simple average of the rate) but I'd guess it would be around 6% some clever maths person will tell me the correct amount.

    I'd guess a weighted average : 8 * (300 / 1050) + 6 * (250 / 1050) + 5 * (500 / 1050) = 6.1%
  • cepheus
    cepheus Posts: 20,053 Forumite
    edited 29 November 2012 at 9:27AM
    Doesn't really address the unfavourable tax treatment of bad debt. Higher-rate taxpayers in particular really should not be lending on higher-risk markets. (Except perhaps on ratesetter if the provision fund works.)

    The table at http://www.p2pmoney.co.uk/compare/lend.htm is quite useful for illustrating how bad debt and tax rates interact.

    Also, rates quoted on zopa tend to be before fees, whereas ratesetter tends to quote rates after fees. So it's not fair to give typical rates of 6% on zopa for 3 years, but 5.8% on ratesetter for 5 years.


    What is the bad debt in that table entered as, a percentage?

    Why do you always need to add bad debt yourself as a variable even when you choose predicted or historic? It makes no sense.
  • cepheus wrote: »
    What is the bad debt in that table entered as, a percentage?

    Why do you always need to add bad debt yourself as a variable even when you choose predicted or historic? It makes no sense.

    The bad debt in the table is a multiplier : leave it as x1 if you trust the provider's estimate, or reduce it if you feel optimistic, or increase it if you want to explore worse-case scenarios.
  • zopa have their own forum at http://talk.zopa.com/ - potential lenders should probably have a read of the 'lending' forum there. In the 'chat' forum there are threads about other p2p providers.
  • Roge
    Roge Posts: 15 Forumite
    I am interested in this. Is it possible to add a few concrete examples to the explanation precisely showing the fees involved from deposit to withdrawal with each company and what the actual net profit would be?
  • It is exciting to see this rapidly growing sector get more attention.

    Technically, some of these site are actually peer-2-business.

    The risk is therefore not if the person defaults but if the company goes under.

    There is a good directory of investment opportunities in established, large-scale UK renewable energy companies here:

    trillionfund [dot] com
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