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  • FIRST POST
    • FatherAbraham
    • By FatherAbraham 14th Apr 19, 11:32 AM
    • 956Posts
    • 716Thanks
    FatherAbraham
    What is P2P lending good for? (Zola, mostly)
    • #1
    • 14th Apr 19, 11:32 AM
    What is P2P lending good for? (Zola, mostly) 14th Apr 19 at 11:32 AM
    Although I'm a current peer-to-peer lender, via a couple of the mainstream intermediaries (including the venerable Zopa, but that's not the only one), sometimes I find it hard to justify this asset class to myself.

    I appreciate that I can probably earn attractive interest rates, as long as I'm happy to wait for my thousands of borrowers to slowly repay what they owe me. However, the terrible illiquidity of the assets is frightening.

    The secondary market seems to be stacked against sellers of loans (if current interest rate are higher than those my loans were written at, then I have to accept a haircut on the capital received when seeking - but if my old loans were written at a higher rate, I get no corresponding capital uplift on selling).

    Performing loans which have ever had repayment difficulties can't be sold at all, but no platform ever gives me an easy overview of how much of my entire loan book is tied up in such illiquid assets. This is worrying, because I have no idea what proportion can't be sold at any price.

    Sometimes I think I'm picking up pennies in front of a steamroller.

    More accurately, I think one's problems with P2P only really become apparent when one needs one's capital back for living expenses or an unexpected emergency. It will take at least five years to get every possible penny back (could be longer if some loans are using voluntary agreements to repay at a slower rate than we originally planned.

    When I hold equities or bonds, there's a constant secondary market. Secondary markets in P2P loans are nothing like that. Perhaps it's harder to lose capital because the loans are not tradable, and the way to make them liquid is to borrow against them when one needs the money?
    Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...
    THE WAY TO WEALTH, Benjamin Franklin, 1758 AD
Page 1
    • takesyourchances
    • By takesyourchances 14th Apr 19, 11:50 AM
    • 752 Posts
    • 507 Thanks
    takesyourchances
    • #2
    • 14th Apr 19, 11:50 AM
    • #2
    • 14th Apr 19, 11:50 AM
    Although I'm a current peer-to-peer lender, via a couple of the mainstream intermediaries (including the venerable Zopa, but that's not the only one), sometimes I find it hard to justify this asset class to myself.

    I appreciate that I can probably earn attractive interest rates, as long as I'm happy to wait for my thousands of borrowers to slowly repay what they owe me. However, the terrible illiquidity of the assets is frightening.

    The secondary market seems to be stacked against sellers of loans (if current interest rate are higher than those my loans were written at, then I have to accept a haircut on the capital received when seeking - but if my old loans were written at a higher rate, I get no corresponding capital uplift on selling).

    Performing loans which have ever had repayment difficulties can't be sold at all, but no platform ever gives me an easy overview of how much of my entire loan book is tied up in such illiquid assets. This is worrying, because I have no idea what proportion can't be sold at any price.

    Sometimes I think I'm picking up pennies in front of a steamroller.

    More accurately, I think one's problems with P2P only really become apparent when one needs one's capital back for living expenses or an unexpected emergency. It will take at least five years to get every possible penny back (could be longer if some loans are using voluntary agreements to repay at a slower rate than we originally planned.

    When I hold equities or bonds, there's a constant secondary market. Secondary markets in P2P loans are nothing like that. Perhaps it's harder to lose capital because the loans are not tradable, and the way to make them liquid is to borrow against them when one needs the money?
    Originally posted by FatherAbraham

    Once you really understand the illiquidity from experience in P2P it outlines a lot of what you have explained and you seem to be experiencing it alright.



    For many of these reasons and platform failure, in my case Collateral I am nearly out of P2P fully now. Just two defaults in Moneything at just over 500 and around 4500 in the Collateral saga. So out of the 17K odd I had in P2P I managed to get around 12k out last year, but from what I see a lot of that would not be so easy to get out this year and I still have as good as 5K in major problems, which remains to be seen if I will see any of it and I have mentally wriiten it off and I am carrying on with my other stocks investing.



    I am now focusing on my stock investments and also building up dividends from investment trusts etc as well which is starting to bear fruit.


    I would not invest in P2P again for many of these reasons and my own experiences of P2P. I gave it a go and got out best I can once the cracks appeared. The winding down process can be painfully slow and irritating once illiquidity bites and the run around of defaults happening or worse platform failure.



    Going by your post, it seems P2P is not really for you.
    • FatherAbraham
    • By FatherAbraham 14th Apr 19, 11:50 AM
    • 956 Posts
    • 716 Thanks
    FatherAbraham
    • #3
    • 14th Apr 19, 11:50 AM
    • #3
    • 14th Apr 19, 11:50 AM
    Perhaps I should emphasize the question in the title. Although peer-to-peer lending send to make sense while accumulating assets, unwinding those loan contacts is not easy, and perhaps I've failed at matching my assets to my liabilities.

    What liabilities are peer-to-peer loans well-matched to?

    (Oh dear, the title was supposed to say "Zopa, mostly", not recall 19th-century French author Emile Zola.)
    Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...
    THE WAY TO WEALTH, Benjamin Franklin, 1758 AD
    • Alexland
    • By Alexland 14th Apr 19, 12:20 PM
    • 4,904 Posts
    • 4,236 Thanks
    Alexland
    • #4
    • 14th Apr 19, 12:20 PM
    • #4
    • 14th Apr 19, 12:20 PM
    We have done ok from a few P2P signup bonuses but the normal rate of return doesn't seem to justify the risk. Our existing investments with Kuflink and Ratesetter will both mature in the next month and after that we have no plans to reinvest - unless I get tempted by another offer...
    • masonic
    • By masonic 14th Apr 19, 1:05 PM
    • 11,563 Posts
    • 9,205 Thanks
    masonic
    • #5
    • 14th Apr 19, 1:05 PM
    • #5
    • 14th Apr 19, 1:05 PM
    Perhaps I should emphasize the question in the title. Although peer-to-peer lending send to make sense while accumulating assets, unwinding those loan contacts is not easy, and perhaps I've failed at matching my assets to my liabilities.

    What liabilities are peer-to-peer loans well-matched to?

    (Oh dear, the title was supposed to say "Zopa, mostly", not recall 19th-century French author Emile Zola.)
    Originally posted by FatherAbraham
    As you've found, P2P is not suitable for money you might need within the next 5 years. It can be useful as a diversifier to other high risk investments, for up to 5-10% of your investments. Loans do need careful selection because there are a lot of rogue borrowers and worthless assets out there. If you weed those out through due diligence then what you are left with a worthwhile return after bad debt. It's a lot of work though and I have been gradually reducing my exposure because of this.
    • Albermarle
    • By Albermarle 14th Apr 19, 1:05 PM
    • 580 Posts
    • 325 Thanks
    Albermarle
    • #6
    • 14th Apr 19, 1:05 PM
    • #6
    • 14th Apr 19, 1:05 PM
    My limited experience ( four platforms ) is that regardless of the apparent risk level of the loans , the average return always seem to end up around 5 to 6% after a couple of years ( + sign up bonuses) .
    Is that worth the risk of platform failure ; loan book going South in a recession ; illiquidity etc .
    Probably not but I see P2P as a useful alternative investment to the usual S&S investments , as long as it is kept as small % of a portfolio .
    At the moment I am withdrawing interest but not actively selling or buying . Except for a dabble on the Triodos crowdfunding site ( social enterprise/environmental loans ) . Very long term ; very illiquid and not very exciting interest rates . However the DD is a league above and it makes me feel like I am doing something useful with my money
    • DiggerUK
    • By DiggerUK 15th Apr 19, 7:49 AM
    • 3,280 Posts
    • 3,245 Thanks
    DiggerUK
    • #7
    • 15th Apr 19, 7:49 AM
    Loan swaps in new bottles. Vintage deja vu anybody?
    • #7
    • 15th Apr 19, 7:49 AM
    "I appreciate that I can probably earn attractive interest rates, as long as I'm happy to wait for my thousands of borrowers to slowly repay what they owe me. However, the terrible illiquidity of the assets is frightening. (OP)

    The potential returns of P2P are a major pull when compared to savings acounts. For whatever reasons, it then seems the risks of P2P are ignored.

    Getting the return of your money on demand is handy, this always seemed to me to be something that could become problematic if a quick liquidation is needed.
    When I have looked at t&c's of various P2P platforms, it seems that cash goes into holding accounts very quickly, doesn't get put to work very quickly, and is hanging around for quite a while in the platforms bank account doing nothing.

    I can only urge anybody with cash in P2P to consider an exit asap, these are nothing more than vehicles to sell on dodgey loans. These platforms will never be considered 'too big to fail' and bailed out..._
    I am not now, nor have I ever been, a Financial Adviser.
    'Forward to the British Spring' 'Viva Wikileaks'
    • Malthusian
    • By Malthusian 15th Apr 19, 9:10 AM
    • 5,640 Posts
    • 9,342 Thanks
    Malthusian
    • #8
    • 15th Apr 19, 9:10 AM
    • #8
    • 15th Apr 19, 9:10 AM
    Ask not what P2P can do for you but what you can do for P2P.

    Whenever anyone asks what P2P is good for the answer is always something to do with helping out a brother who can't get credit from the banks, rather than helping investors beat inflation over the long term without risking permanent losses. Which is what conventional equity investment is good for.

    Jemima who borrowed 1,000 to set up an artisanal coffee van is then used as justification to funnel billions of pounds of retail investors' money into God knows where with no due diligence that any professional corporate finance practitioner would recognise as worthy of the name.
    • jamei305
    • By jamei305 15th Apr 19, 9:17 AM
    • 378 Posts
    • 447 Thanks
    jamei305
    • #9
    • 15th Apr 19, 9:17 AM
    • #9
    • 15th Apr 19, 9:17 AM
    I dipped my toe into Funding Circle a few years ago. It was surprising how many asset-backed guaranteed loans went bad, with assets turning out to be insufficient and guarantors going bankrupt.
    • Kendall80
    • By Kendall80 15th Apr 19, 9:26 AM
    • 838 Posts
    • 551 Thanks
    Kendall80
    I'm trying to exit P2P curently after some bad experiences (most notably the Lendy London loans).


    I have 1500 remaining still locked in that I havent been able to 'withdraw' for the past 6 months which is rather frustrating. With this returned my 3 year foray into P2P would have at least been profitable but I do not hold much hope. Some loans are a year overdue. However, as my allocation to P2P was <5% of my portfolio this wont be a 'life changing' loss.
    • aroominyork
    • By aroominyork 15th Apr 19, 10:17 AM
    • 834 Posts
    • 280 Thanks
    aroominyork
    I'm also learning the hard way, with a stack of bad debts on Funding Circle. I still think P2P can play a role in a diversified portfolio, though I have no interest in selecting loans but instead want a 'fire and forget' option. What suits me best is Ratesetter's 1 year market - I can pick an interest rate (5.5% usually gets picked up within a week), not worry about needing someone else to take over my loan unless I want to get our early, and the Provision Book provides a good degree of cover against bad debts. The main risk I am taking is platform failure.
    • agent69
    • By agent69 15th Apr 19, 10:21 AM
    • 231 Posts
    • 182 Thanks
    agent69
    when one needs one's capital back for living expenses or an unexpected emergency.
    Originally posted by FatherAbraham

    If this is a potential scenario then P2P is definately not for you.
    • Malthusian
    • By Malthusian 15th Apr 19, 1:39 PM
    • 5,640 Posts
    • 9,342 Thanks
    Malthusian
    I dipped my toe into Funding Circle a few years ago. It was surprising how many asset-backed guaranteed loans went bad, with assets turning out to be insufficient and guarantors going bankrupt.
    Originally posted by jamei305
    Not really. When you lend money based principally on what the borrower can invent about their financial position, with no meaningful attempt to verify whether any of it is true, it is not surprising when many of those loans go bust with little or no recoveries. It may surprise but it is not surprising.
    • Thrugelmir
    • By Thrugelmir 15th Apr 19, 2:21 PM
    • 62,877 Posts
    • 55,845 Thanks
    Thrugelmir
    I dipped my toe into Funding Circle a few years ago. It was surprising how many asset-backed guaranteed loans went bad, with assets turning out to be insufficient and guarantors going bankrupt.
    Originally posted by jamei305
    If the collateral on offer was adequate. The borrower would have had no problem obtaining finance from a convetional source at a far cheaper overall cost. The value of "assets" is subjective. In a firesale full value is rarely if ever achieved.
    "The most dangerous thing is to buy something at the peak of its popularity. At that point, all favourable facts and opinions are already factored into its price and no new buyers are left to emerge." - Howard Marks
    • quirkydeptless
    • By quirkydeptless 15th Apr 19, 3:30 PM
    • 104 Posts
    • 87 Thanks
    quirkydeptless
    P2P, huh, yeah
    What is it good for?
    Absolutely nothing
    Say it again, y'all
    This is not investment advice.
    Your money may go "down and up and down and up and down and up and down ... down and up and down and up and down and up and down ... I got all tricked up and came up to this thing, lookin' so fire hot, a twenty out of ten..."
    • Zola.
    • By Zola. 15th Apr 19, 3:53 PM
    • 1,437 Posts
    • 658 Thanks
    Zola.
    Its good for me?
    • Albermarle
    • By Albermarle 15th Apr 19, 4:10 PM
    • 580 Posts
    • 325 Thanks
    Albermarle
    If the collateral on offer was adequate. The borrower would have had no problem obtaining finance from a convetional source at a far cheaper overall cost.
    P2P comes in many guises and whilst the above statement is correct in many cases , it is a rather sweeping generalisation. For example many of the supposed SME's borrowing money are in fact very small and are really micro businesses. These do find it difficult to get finance from banks etc especially as the bank has to do a proper DD on them which is not worth their while . So P2P helps to fill a gap in the market , although with some risk to the Investors of course.
    • firestone
    • By firestone 15th Apr 19, 5:00 PM
    • 379 Posts
    • 169 Thanks
    firestone
    With Landbay by their figures being about 80% institutional money,The British Business Bank putting tax payers money through the likes of FC and BAE systems pension fund putting 200 million into P2P a couple of months back,maybe more people are in it then they realise
    • ruperts
    • By ruperts 15th Apr 19, 5:50 PM
    • 1,737 Posts
    • 3,324 Thanks
    ruperts
    As you've found, P2P is not suitable for money you might need within the next 5 years. It can be useful as a diversifier to other high risk investments, for up to 5-10% of your investments. Loans do need careful selection because there are a lot of rogue borrowers and worthless assets out there. If you weed those out through due diligence then what you are left with a worthwhile return after bad debt. It's a lot of work though and I have been gradually reducing my exposure because of this.
    Originally posted by masonic
    What's the diversification benefit considering P2P hasn't really been tested in an economic crash environment? If people are struggling to get their money back now in relatively mild conditions, it seems fairly safe to assume that there would be no negative correlation with other assets in a crash scenario.
    • masonic
    • By masonic 15th Apr 19, 6:15 PM
    • 11,563 Posts
    • 9,205 Thanks
    masonic
    What's the diversification benefit considering P2P hasn't really been tested in an economic crash environment? If people are struggling to get their money back now in relatively mild conditions, it seems fairly safe to assume that there would be no negative correlation with other assets in a crash scenario.
    Originally posted by ruperts
    Zopa, and a few European P2P platforms, launched prior to the global financial crisis, so we have some insights into what might happen in an economic crash environment.

    You don't need negative correlation for there to be a diversification benefit, just low correlation. I also invest in private equity as a diversifier, as another example of an asset class that isn't negatively correlated, but has low correlation, with global listed equities.

    Part of the reason people are struggling to get their money back is that P2P is less liquid than it is perceived. The other part is irresponsible lending on the part of P2P platforms. Platforms have little incentive to turn away business when it isn't their money at risk. This reduces the returns achievable during the good times. The loss potential during the bad times will depend on the specific loans in which you are invested and what the assets securing those loans (if any) are worth in a fire sale. So people will have vastly different outcomes depending on their specific investment decisions, and those letting the platforms decide for them might end up amongst the worst off.
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