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  • FIRST POST
    • jpi
    • By jpi 6th Aug 18, 10:53 PM
    • 7Posts
    • 8Thanks
    jpi
    Trying P to P
    • #1
    • 6th Aug 18, 10:53 PM
    Trying P to P 6th Aug 18 at 10:53 PM
    This is my experience to date of lending through the Funding Circle Peer to Peer website:

    About a year ago I invested (or strictly speaking 'lent') 25k through Funding Circle, this being a small part of my assets so I need not mind too much should I end up loosing the lot. My intention was to review the situation a year later and if I had made a profit anything like the anticipated pre-tax 7.5% AER then I would probably want to input a larger amount.

    I selected the option to lend to all risk categories rather than the alternative of only lending to the lowest risk categories. I also selected the 'autobid' option meaning that an algorithm would select borrowers for me (now the only option with Funding Circle) and I opted to have interest and repayments lent out rather than paid to my bank account.

    I introduced my 25k in several tranches over a period of about a month since new money is not instantly lent out and there is no interest paid on cash waiting to be lent out. Once my 25k was lent out to several hundred companies I checked the website from time to time to see how my profit was growing and to check for any comments on any of my loans. Comments appearing on loans are more often than not bad news - they could be just a single slightly delayed monthly repayment or they could be a company gone into administration. For the first few months the situation looked very good - I seemed to be making steady gains suggesting I might make get back even more than the anticipated 7.5% pre-tax profit and I received only a few insignificant comments on any of my loans. As my loans were paid off new ones were arranged without my needing to do anything. Then fairly suddenly the comments became more frequent and more serious meaning that quite a few of my loans had been 'downgraded'. That means that the financial state of the companies is believed to be such that I would not be allowed to sell those loans to other lenders. However, my portfolio total, as shown in the summary on the website, was still sugesting a good profit since both sellable and unsellable loans are included in that figure, something that in my naivity I did not realise until a bit later on. Shortly before my 12 month trial period was up I decided to see just what would be the value of my loans should I choose to sell all those that were still sellable and I was a little taken aback to find it was 24,474, considerably less than my portfolio total at that time. So in terms of the amount of cash I could immediately recover, I had made a loss of 526. At that point I decided to recover what I could of my money and sold all my sellable loans and turned off the re-lend option so that money would accumulate in my account from any interest/repayments that might still be made. The selling process is automated and was quickly completed, I think within hours. This was a few weeks ago and checking the website today I am indeed still receiving a trickle of interest/repayment money and also some of my loans that were unsellable have now become sellable again, the financial situation of the companies presumably having improved. This means that at todays date I am in a position to recover a further 526, although I havent actually done so just yet. That, by pure chance, means that I am back to my original 25k - within a matter of pence! And interest/repayments are still trickling in - accrued interest for next month is 12.19. Also funding circle may receive some payment from administrators/guarantors of the companies which have gone bust and some of that may trickle back to me over goodness knows how many months or years to come. So in the end I will have made a small pre-tax profit, but I cant imagine it will be anything like the anticipated 7.5%. And then again, looking at the tax statement that Funding Circle has provided, I see that for the 2017/18 tax year I have to declare an additional 915 of income, that's after allowing for 155 of bad debt relief. I would have thought that the extra tax I will have to pay on that income will more than eliminate any tiny profit I have made.

    Although I did not keep detailed records of what was happening week by week, it was my impression that the number of my loans that were downgraded increased significantly soon after Funding Circle introduced an ISA option. This is wild and un-educated speculation, but could it be that the ISA option created a surge in new lenders that was not matched by an increase in borrowers. Presumably, the Funding Circle algorithm has to match the money loaned to borrowers with that input from lenders, so one might imagine that a surge in the number of lenders would lead to money being lent to higher risk borrowers? Presumably the algorithm does not have the ability to say 'sorry, there are no dependable borrowers arround at the moment, so here is your money back'.

    So, the way the markets have gone I would certainly have been better off leaving my 25k in its previous home which was a diversified multi-assett OEIC.. Indeed I am pretty sure I would have done better to put it into a bank savings account. But at least I have not made a loss that will bother me too much.
Page 1
    • LobsterMemory
    • By LobsterMemory 7th Aug 18, 7:33 AM
    • 80 Posts
    • 45 Thanks
    LobsterMemory
    • #2
    • 7th Aug 18, 7:33 AM
    • #2
    • 7th Aug 18, 7:33 AM
    Always interesting to read real-life experiences

    Questions from a novice:

    Do you feel that you were spooked out of your investments too early?

    How dodgy are unsellable loans - would they just be higher risk or total basket cases?

    Do you know your actual default figures?

    Thanks!
    • jsinc
    • By jsinc 7th Aug 18, 9:31 AM
    • 112 Posts
    • 48 Thanks
    jsinc
    • #3
    • 7th Aug 18, 9:31 AM
    • #3
    • 7th Aug 18, 9:31 AM
    I lent money on funding circle in 2010. Less than 25k. Was set up to autobid on A+/A borrowers. Within days had lent to a business I wouldn't categorise as particularly safe (commercial property services) at 8% and 9%. I wasn't able to reverse this. They defaulted within five months with zero recovery on outstanding debt. Net earnings in the period were negligible but positive.

    I think that was FC's first default and probably within acceptable bad loan rates on a random individual basis, but I no longer trusted their appraisal/rating and due diligence methods and sold off remaining loans. Perhaps they've improved since, although it takes two to tango so was a good lesson in doing better preliminary research.
    • Upwind
    • By Upwind 7th Aug 18, 10:27 AM
    • 162 Posts
    • 59 Thanks
    Upwind
    • #4
    • 7th Aug 18, 10:27 AM
    • #4
    • 7th Aug 18, 10:27 AM
    Did similar and still have over 1k in loan parts waiting for resolution - did OK overall, but nowhere near the 6 to 7% expected (medium risk bracket).

    Won't be venturing into it again any time soon... better (and clearer) investment opportunities out there.
    • jpi
    • By jpi 8th Aug 18, 4:48 PM
    • 7 Posts
    • 8 Thanks
    jpi
    • #5
    • 8th Aug 18, 4:48 PM
    • #5
    • 8th Aug 18, 4:48 PM
    LobsterMe: Q1 I dont know for sure, but I thought P to P is reckoned to be a very low volatility option so little point in hanging on in the hope that things will suddenly improve as they certainly can do with equitiy investments. But maybe I did pick a bad period to try it out, I do not have the knowledge/expertise to know.

    Q2 I have just checked the websie and it tells me that I now have loans to 25 businesses, 15 of which are downgraded (i.e. those loans are unsellable) Since I have turned off the re-lend option I can say that all the loans to those 25 bushinesses were unsellable at the time of my sell-off a few weeks ago So during the last few weeks some loans have changed status from unsellable to sellable, I did not really expect that to happen. This suggests that not all of my remaining loans are complete 'basket cases' and there is a prospect of a small profit eventually, at least if I forget about the extra tax I will pay. Scanning through the loan comments I see a variety of scenarios - some good e.g.repayments resumed, some not so good e.g. FC still unable to make contact with Guarantor.

    Q3 I regret that I dont know the actual default figures since I did not keep records, or screen dumps, week by week. But about a year ago I had a few hundred non-defaulted sellable loans, now I have 15 unsellable ones and 10 sellable ones. So the percentage that have become unsellable is quite small but the effect on the overal profit seems considerable.

    jsinc and Upwind - interesting that your experience with Funding Circle was fairly similar to mine - i.e. a small pre-tax profit but much less than the website might lead you to expect. It seems strange, the FC website gives data for profits people have made in the past few years (comparable to a FTSE100 tracker fund) so assuming this is not blatant lying, have we all 3 been very unlucky, or what?
    • jsinc
    • By jsinc 8th Aug 18, 6:03 PM
    • 112 Posts
    • 48 Thanks
    jsinc
    • #6
    • 8th Aug 18, 6:03 PM
    • #6
    • 8th Aug 18, 6:03 PM
    jsinc and Upwind - interesting that your experience with Funding Circle was fairly similar to mine - i.e. a small pre-tax profit but much less than the website might lead you to expect. It seems strange, the FC website gives data for profits people have made in the past few years (comparable to a FTSE100 tracker fund) so assuming this is not blatant lying, have we all 3 been very unlucky, or what?
    Originally posted by jpi
    Was in and out within 7 months, so profit measure not meaningful. Could be that net earnings would have improved had I waited to find out. But I'm quite strict with myself on cutting losses, and did so as soon as I realised that either I and/or FC didn't fully know what they were doing - even if just in risk rating terms rather than general appraisal.
    • Wildsound
    • By Wildsound 8th Aug 18, 6:35 PM
    • 183 Posts
    • 115 Thanks
    Wildsound
    • #7
    • 8th Aug 18, 6:35 PM
    • #7
    • 8th Aug 18, 6:35 PM
    Thanks for the post, always interesting to hear about peoples experiences in a relatively new mainstream financial product.

    25k through Funding Circle, this being a small part of my assets so I need not mind too much should I end up loosing the lot.

    I was a little taken aback to find it was 24,474, considerably less than my portfolio total at that time. So in terms of the amount of cash I could immediately recover, I had made a loss of 526. At that point I decided to recover what I could of my money and sold all my sellable loans and turned off the re-lend option so that money would accumulate in my account from any interest/repayments that might still be made.

    But at least I have not made a loss that will bother me too much.
    Originally posted by jpi
    From your OP, I have highlighted a few points which seem rather conflicting. You mention that you wouldn't mind losing the lot, but when you were faced with a 2.1% loss you appear to have run for the exit doors. This would seem to suggest that your attitude to risk is not as high as you think it might be.

    I don't care what their sites or other people say, P2P is a high risk investment, with no FSCS protection and the (granted unlikely) potential for you to lose all your money.

    As part of a balanced portfolio, it can work alongside other investments, so I'm not saying it's something people should avoid. If it wasn't for high risk investments, then the world around us would look very different right now (arguably for the worse).
    • stehouk
    • By stehouk 8th Aug 18, 8:52 PM
    • 150 Posts
    • 60 Thanks
    stehouk
    • #8
    • 8th Aug 18, 8:52 PM
    • #8
    • 8th Aug 18, 8:52 PM
    I invested 10k in funding circle and regretted IT from day one, i withdrew after 12mths due to lots of bad debts, i managed to withdraw the bulk of the money, and was short about 180, i log into the account and i am able to withdraw 15-20 at a time once every 2-3mths, i wouldn't advise anyone to invest with them.
    • point5clue
    • By point5clue 8th Aug 18, 8:52 PM
    • 55 Posts
    • 16 Thanks
    point5clue
    • #9
    • 8th Aug 18, 8:52 PM
    • #9
    • 8th Aug 18, 8:52 PM
    I don't have any business P2P lending experience, but have some money in Zopa lending to individuals. I have read on the forums that it is very common for defaults to tick up after a year as this is where many borrowers start to have problems. I agree with Wildsound that P2P is a high risk (like equity) investment, but also agree it has its place.

    It has been my experience that after the first year as the spread of loans includes more and more loans into their second and subsequent years that returns smooth out.

    I still expect that the next really big downturn will hit P2P, partially in increased defaults, but mainly in vanishing liquidity.

    My plan for my P2P money is to use as an alternative income stream during a stock market downturn to alleviate the dreaded 'sequence of returns' risk, so I'm not too worried about being able to cash the whole lot in on any given day. I just turn off re-lending and the repayments plus any interest are shares I don't have to sell during a dip.
    • jpi
    • By jpi 9th Aug 18, 4:10 PM
    • 7 Posts
    • 8 Thanks
    jpi
    Wildsound - I dont feel that I ran for the exit doors in a panic, rather I ran because, based on my understanding at that time, I could see no likelyhood of my P to P account ever making anything like the anticipated profit. However, perhaps my reasoning was wrong, if it was, my mistake would probably have been to assume that if a loan becomes unsellable it is basically worthless. I have since realised that is not entirely true, some unsellable loans later become sellable, some unsellable loans still generate repayments and interest and even when a company becomes bankrupt some money may eventually be returned to lenders. So how wrong was I -it would be good to know since my 25k is still in the bank and could go back into P to P to stay there for longer than 12 months if that really is a good place for it.



    I take point5clue's point about loans frequently defaulting after about 12 months, but if this is the case the effect will be mitigated to some extent by not all loans that are aquired at the start of lending being new loans. When I input my money I was fairly quickly allocated several hundred loan parts. Some of these loan parts would have been second hand so possibly anything up to 5 years old. I dont know what proportion of my initial loan allocation was new and what was second-hand.



    I can also believe that the benefit of P to P will be dependant on how lenders money matches borrowers demand. One would think that more input from lenders that is not matched by demand from borrowers would mean more dubious borrowers being accepted and in due course more defaults So, as point5clue sugests, vanishing liquidity could be a problem in a downturn, as well as increased default rate. And as P to P becomes more established and more well known to the general public, might the increase in lenders outstrip any increase in business borrowers, perhaps also leading to more shaky companies being given loans.


    I note that Sthouk's experience with Funding Circle is very similar to my own - ie. very little profit after 12 monthis so pulled out but still waiting for all the money to trickle in (presumably also extra tax to pay). Jsinc the same, although over a shorter period. Mind you, should not read too much into this since I guess unhappy experiences may be more likely to be writtain about than good ones. Can anyone tell me that they put money into FC and got 7% or thereabouts profit over a reasonable period?
    • dont_use_vistaprint
    • By dont_use_vistaprint 24th Aug 18, 3:41 PM
    • 83 Posts
    • 22 Thanks
    dont_use_vistaprint
    No complaints here 13% gross, 11.5% annualised, 8.5% estimated return - zero losses to date. Never had an issue selling loans, 10k worth go in a mater of minutes
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