Peer-to-peer lending sites: MSE guide discussion

Thanks masonic,

It was the MLIA account I was probably most interested in. It looked like the QAA/30DAA would have been a good place to park funds while awaiting loans in the MLIA.

Rates would look more attractive within an IFISA but perhaps I'll have a look in order to diversify a little more over time.

Have I missed any other sites with similar offerings to Ablrate, Moneything, Collateral or Funding Secure ie similar loans with rates between 10-12%?

nxdmsandkaskdjaqd wrote: »

In general, is there any difference in the risk profile between long and short term loans?

In general, it depends on the specifics of the lending being done.

If it's unsecured consumer credit the answer depends on the risk profile of the borrowers. The total number of adverse life events leading to a default would be higher for an individual longer loan. So a higher percentage of them would be expected to default. If a borrower seeking a loan is limited by affordability and forced to borrow for longer for that reason that would also imply greater risk. But there are also risks like fraud and just losing a job early that might be on more of a per loan rate, not duration-related rate. All of those things become an annualised bad debt rate, the premium needed on top of the base interest to cover the bad debt. That could be higher or lower for longer term loans depending on the specifics.

There are similar issues for business borrowing on straightforward secured and unsecured loans. Less overall fraud risk for one long term than several short term but more chance for the business trading conditions to become worse.

A secured amortising loan has lowering risk over time if the security maintains its value because the loan as a percentage of asset value drops, increasing the chance of full recovery. If the security is depreciating the risk might go up if the depreciation is faster than the amortisation. 90% of a new car purchase price loan would not be wise because all of the ten percent margin would vanish in VAT if sold to a consumer and generally in early depreciation. If it's 90% of a residential property the security value might go up, or down, depending on area and when the loan is made.

Business property valuations are based generally on rent but that can sometimes be inflated with bogus rent paid by a related company that just expects to pay it until it becomes bankrupt, leaving the lenders with over-valued security that can't repay the loan taken out by the borrowing company. So use more care with such valuations.

Mortgages are lower risk in part because of their term, the property has a higher chance of increasing in value over a longer term than a short one where there might be a market drop.

Property development loans are perhaps the opposite, the money is being fed in and the exit time is relatively short and fixed, increasing risk of trouble in a downturn if one happens between loan and sale of the property.

Pawn is short term but the lender either holds (conventional pawn) or owns (buy back by borrower agreement) the property and lends based on well understood values.

There's also interest rate risk. Generally greater for longer term loans. Today you might expect rates to rise in the economy generally, favouring lending at shorter terms so you can relend later at higher rates. But within P2P there's a bit of a trend of increased competition causing rates to fall so the risk here might favour longer terms. There's also early repayment risk, since borrowers can normally choose to repay to get a lower interest rate, reducing the value of lending long to try to lock that in.

It depends is the general rule. Type of lending probably matters more than term.

The cash in a deposit account isn't protected against P2P theft but against bank failure.

If the LTV is real and calculated on the same basis the risk is lower. Some places might use gross development value instead of current value or full marketing time value instead of 90 day sale value. GDV is estimated final sale value of a completed project, not value during most of the loan duration.

Some places will pay interest before full funding, either routinely or sometimes. To encourage people to invest early.

Interest is normally paid monthly but Funding Secure does a lot of pawn loans where it's paid at the end. Can be used immediately.

donerkebab wrote: »

Just looking at the main ones Funding Secure / Lending Works any others?

As I understand FS - loans secured against property = 10-13%

Lending Works = 3.6% over 3 Years or 4.5% over 5 years

ok its double the highest normal ISA rate but why would I go for this rather than FS - assume same risks no FCS/FCCS compenstation etc

It's not a binary choice. You can have an account with Lending Works and FundingSecure​.

Lending Works is a hands off investment. I have an IFISA investing in the 5 year loans (new loans offering 4.4% this week). It's a lower rate but involves no real ongoing management from myself other than to make a deposit and let them deal with the lending. They offer something called 'the shield', a mixture of a reserve fund and insurance which they suggest will protect your capital.

I've also got a FundingSecure account with loans at 10-14% but it involves more work to select the loans, make deposits, reinvest interest payments etc.

My hope is that by holding a mixture of cash (perhaps only earning 2.25% interest), some p2p earning 4.4% and some p2p earning up to 14% I might be diversified against different risks.

It's too early to know if my FundingSecure investment will yield 12%+ as I've had neither loan repayments or defaults yet.

elephantrosie wrote: »

is there a thread that discusses ablrate?

Yes, here's the current list though I'm going to add some more soon, all with the links to the others at the start to make moving between them easier.

TOPICS: generic P2P, Ablrate, Lendy (formerly Saving Stream), MoneyThing.