Peer-to-peer lending sites: MSE guide discussion

agent69 · 9 December 2012 at 10:49AM

I'm trying to do as much research as possible before I decide whether to dip my toe into P2P lending. I'm looking for a couple of bits of information that I can't find on the P2P web sites. If anyone has any experience or information on these it would be much appreciated;

On Funding Circle borrowers are not obliged to accept a loan if they don't like the quoted interest rate. What percentage of potential borrowers turn down the loan they have been offered?
On Zopa supply of money for lending appears to outstrip demand for loans by about 3 to 1. If I am looking for an average rate of return, how long does it typically take before my money is leant out?

jamesd · 9 December 2012 at 8:22PM

The average rate of return question really isn't a good one to be asking. It's a market, so the average rate varies over time. My average rate there is above 8% after bad debt, before tax effects (actually above 10% last time I checked). If you want that, you can't get it at all at the moment. You can't even get it before bad debt.

If you simply want to lend at the current market rates you might recon on being a participant in say 300 of a total of 450 loans a week, so say 1300 loans a month. Multiply by your maximum exposure of say £10 and that gets you to £13,000 lent out a month if you're lending at anything like the rates Zopa is implying you should lend at with its data presentation.

Very few people need to be lending at that rate and in practice you can generally do better by looking to lend only in the last week of the month and adjust your interest rate to achieve that objective. Then you'll be getting to lend only at the times when the rates are at the monthly highest points. If you don't meet your lending rate target, add a second offer at a slightly higher interest rate. This second offer will get you a slightly higher rate by lending to loan sizes that are bigger than those matched by the base offer. A third offer can also be useful but in current market conditions it's not really likely to be matched. More offers than this can also be very useful but only at times when there is less of a glut of money available.

At the moment the influx of money means that rates are in a downward trend, so the usual good advice to offer a rate above the levels Zopa implies you should use may result in no lending at all. The best fix for this is not to lower the rates but instead to wait for a better time to lend.

If you want to get the best results from Zopa, put your money in when there is a shortage of supply, which currently starts to happen somewhere between three and two million available for lending and then more potentially beneficial below that.

If you want my guess at the next sensible time to be investing with Zopa, it's likely to be no sooner than March or April 2013 but I think that there is a substantial chance that there will be no good time at all during 2013. Rates there are just too low compared to the other investment options around and it doesn't make sense to be in a market that isn't worth being in.

So best to be patient and do other things for a while. Its time will come, just not today.

jamesd · 12 December 2012 at 2:42AM

Northern Rock pays £270m to 150,000 after cockup. NRAM seems to be proposing to waive interest for customers who received documentation that didn't comply with the requirements of the Consumer Credit Act, for the whole period covered by the non-compliant documentation.

Added later:

'Richard Banks, chief executive of UKAR ... said the law, obliging a reimbursement of interest even though “no customer has suffered any detriment”, was “very draconian”. However, UKAR had consulted widely with lawyers and regulators and concluded it had no choice but to make the reimbursements. ... the Consumer Credit Act ... Under the act, unsecured borrowers must be reminded how much they had originally borrowed.'

For anyone who has been lending via Zopa, I checked loan annual statements from December 2009 and 2010 and both contained a statement of the original balance. I have not reviewed the accuracy or completeness of the other language in the annual statements, nor do I assert that Zopa has complied with all of the requirements of the Act there or in other documentation relating to a loan. I merely and only assert that the original loan amount was present in my annual statements.

If you're lending via a P2P lender I suggest that you ask them for example copies of all notifications, from original lending documentation through annual statements and closed loan items so you can check them against the OFT requirements. Before those you have lent money to do so for their copies. Be sure to ask for examples for loans of terms 1, 3 and 5 years or odd months if they offer those that aren't round numbers of years. Some of the required information is different for different loan terms. If they refuse, that's additional strength to your argument that the P2P company and their professional advisers will be liable for any interest refunds, not you - you can't be expected to check when they refuse to even provide you with a copy to look at.

Jonbvn · 12 December 2012 at 2:07PM

Interestingly, the government is now getting into P2B lending.

http://www.telegraph.co.uk/finance/yourbusiness/9738081/Zopa-and-Funding-Circle-win-share-of-public-money.html

Business Secretary Vince Cable is due to name four innovative lenders on Wednesday which have won a share of a £100m public investment, the Daily Telegraph understands.

The £100m fund is part of the £1.2bn Business Finance Partnership, a Government drive to diversify the sources of finance available to businesses.

Funding Circle is a so called ‘peer-to-peer’ lender which directly links retail investors with credit-starved small companies. Zopa does the same for consumer borrowers but is expected to extend its service to sole traders to qualify for the investment.

It is understood that Funding Circle will be given an initial £20m, which will be lent in conjunction with cash invested by consumer users of the site.

yorksguy11 · 17 December 2012 at 6:40PM

agent69 wrote: »

I'm trying to do as much research as possible before I decide whether to dip my toe into P2P lending. I'm looking for a couple of bits of information that I can't find on the P2P web sites. If anyone has any experience or information on these it would be much appreciated;
On Funding Circle borrowers are not obliged to accept a loan if they don't like the quoted interest rate. What percentage of potential borrowers turn down the loan they have been offered?

On Zopa supply of money for lending appears to outstrip demand for loans by about 3 to 1. If I am looking for an average rate of return, how long does it typically take before my money is leant out?

Hi I have been lending on FC for around 18 months and find it good though it does have its drawbacks.
1 Not many companies turn down loans and if they do there will always be other companies on there. Plus if you dont want to wait for days for a bidding to finish or loose out on a bid you can also buy loan parts. But sellers can charge between 0 to 3%. It does say on the filters that sellers will pay you 0 to 3% but i have never seen any loan parts on this.
2 The FC web site is not the best in the world and on occations has crashed or frozen when attractive auctions come to an end. This has happend to me a few times. The last time i was outbid with around ten miniutes to go but could not re bid because of the amount of people trying to get last miniute bids in. In the end it just didnt freeze the all web site crashed. This is very common on FC so try and get last bids in about an hour before the end if you can.
3 Remember also that companies on there can go bust and you can loose your money. At the moment i have 59 loans on there and 3 have outstanding payments on them. One company is now three months behind and the other one month. The third has gone into liquidation. FC will chase these companies but i am informed that it can take over a year or more and in some instances not be succsesful. Although companies are ranked A Good to C Average the companies i am owed are one A and two Bs.
But on the whole i am glad i started lending on there. At the moment the intrest im getting on the 59 loans is 10.3% and varying between one to five years in length. Which is a hell of a lot better than the banks. Plus there is a feelgood factor that your helping out small buisnisses that the banks wont help.
Although im not an expert if you have any other questions please ask. There is also a Independent Funding Circle Forum set up by lenders where you can ask. I used it a bit at the begining and was very helpful.

khris210 · 19 December 2012 at 4:54PM

Further to my previous post #13 you cannot withdraw less than £20, so if you want a monthly income the minimum investment would be roughly £3000. Also on the statements, the repayment of capital is not in a separate column to the payment of interest, which means if you have a portfolio of 40-50 companies its a lot of work to add up how much interest you can withdraw that month.It's all too much trouble, especially when as someone pointed out earlier you can get similar rates from some funds with really less risk.

rwgray · 31 December 2012 at 7:25PM

jamesd wrote: »

Regular savers don't take lump sums. The FD one can be taken out in consecutive years but the balance starts from the initial £300 or less again.

Maybe getting off subject, but I took a look at a couple of high income bonds (including one you referred to previously) and realise that what I crave is not income at all, but high capital gain with managed risk. High fixed income bonds play fast and loose with the capital. I wonder where to look for similar managed investments that aim for the highest 1-5 year capital gains, with [managed] risk?

Cheers, Rich.x

quotememiserable · 31 December 2012 at 8:18PM

jamesd wrote: »

If you don't want to spend much time you could just evaluate these other investments, all FSA regulated with FSCS protection (against insolvency, not capital value variation):

8.90% Aberdeen High Yield Bond Fund
6.63% Newton Global High Yield Bond
6.43% Invesco Perpetual Monthly Income Plus

These aren't really comparable investments to P2Ps though. Here the capital is fully at risk and I'd suggest that bond values are high at the moment. Plus you're quoting the 1 year performance, where the 5 year performance on those funds is poor. I'm happy with my funding circle money, its low risk and capital is fairly secure.

skabunny · 4 January 2013 at 5:57PM

Hi, I just wondered if tax on any money you make off of this is deducted automatically or if you have to declare it. Have been looking at thincats.com and you have to list yourself as a business even if you are an individual lending so would you then have to register as a sole trader with the tax office and declare this as income? Bit confused.....

silvasands · 17 January 2013 at 12:13AM

Just before Christmas, I decided to try Funding Circle. So far, I have invested in approximately 6 companies.There aren`t very many who request a 12 month loan so I have opted for a mix of 12 month, 36 month and one 60 month. These investments add up to just over £1000.I reinvest the interest as you can invest as little as £20.
I am just dipping my toe in as I enjoy new innovations and it`s also helping companies, which, in turn, hopefully employ people.
I don`t request the top rate of interest and the companies themselves state the rate they would like to borrow at.I try somewhere in between...not to greedy.
My only problem as such is, I am dreading the tax form as I have no idea how to go about informing the tax office. I did consider not investing due to the bother of finding out...but decided the challenge would do me good!

Peer-to-peer lending sites: MSE guide discussion

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