Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@. Skimlinks & other affiliated links are turned on

Search
  • 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 2
    • Thrugelmir
    • By Thrugelmir 15th Apr 19, 7:27 PM
    • 62,869 Posts
    • 55,841 Thanks
    Thrugelmir
    P2P comes in many guises and whilst the above statement is correct in many cases , it is a rather sweeping generalisation.
    Originally posted by Albermarle
    I was responding to the particular comment made. Investing in start-up's and companies in early stages of development is a high risk activity. The failure rate speaks for itself. The question for investors is whether the potential return is adequate. Benchmarking against other available rates of return is not a basis on which the judgement should be made.
    "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
    • Fatbritabroad
    • By Fatbritabroad 15th Apr 19, 7:27 PM
    • 526 Posts
    • 327 Thanks
    Fatbritabroad
    I've got about 23k spread across 4 or 5 platforms. It's been good so far. I steer clear of the super high interest rates with the exception of ablrate which is my high risk bit and regard purely as a punt.

    The others are ratesetter, assetz capital, lending works Kufflink.
    I don't intend to add anymore and am just reinvesting. I only add new money to my standard s and s isas
    • Malthusian
    • By Malthusian 15th Apr 19, 8:34 PM
    • 5,636 Posts
    • 9,340 Thanks
    Malthusian
    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.
    Originally posted by Albermarle
    Micro businesses like this used to get bootstrapped on the household credit card which meant that no DD was required. Obviously this has disadvantages for the entrepreneur (you don't get the protection of a limited company) but genuine entrepreneurs will take the risk on regardless, and there are any number of successful businesses of all sizes that started out this way (and lots that failed). The interest rate they had to pay to the lender probably more accurately reflected the risk.

    For business that are more capital intensive there are VCs and suchlike, but these aren't micro businesses (as distinct from micro-cap).

    Mispricing of risk isn't a gap in the market. Any more than there's a gap in the market for selling tenners at 9 each.
    • bowlhead99
    • By bowlhead99 15th Apr 19, 10:57 PM
    • 8,611 Posts
    • 15,750 Thanks
    bowlhead99
    I steer clear of the super high interest rates with the exception of ablrate which is my high risk bit and regard purely as a punt.
    Originally posted by Fatbritabroad
    I have shares in ablrate as they recently did a crowdfunded fundraising round, which is equity-based hence even more of a punt than lending to one of their borrowers.

    However, OP might be interested to know that ablrate and others do offer a secondaries market in which it is possible to sell off loans for something other than your acquisition cost. So, unlike with the one-sided deal he describes at Zopa: while the loans obviously carry credit risk, if you choose to sell off a loan in an environment where prevailing market rates for the same risk has risen or fallen, you might feasibly get more or less than you paid for the loan because the availability of loans paying that rate of interest for that level of risk, has improved or worsened based on 'market conditions' ; lenders genuinely compete in a market of opportunities and assess individual business plans of their borrowers to consider whether they think the loan is attractive to take on.

    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).
    Originally posted by FatherAbraham
    That sort of one-sided secondary market does not sound very good - the price at which someone is prepared to buy your second-hand loan part will be linked to market conditions. If market loan rates are rising, your low rate loan would become pretty unattractive (just like how the bond market works, with more conventional investments), but if rates are falling, the contractual obligation on the part of the borrower to pay you back x interest per y borrowed would be more attractive and someone would be willing to pay you a premium.

    Of course if market rates are falling dramatically and the borrower has the right to just go and get finance from someone else and simply pay back the loan early, the loan may not run to the full term and then you would have to redeploy your capital at those lower market rates. Which is another one-sided risk in P2P lending - you commit your capital knowing you can't pull out early without potentially taking a haircut, yet the borrower can pull out early by paying you off. The chance of that happening will vary from place to place, as a P2P loan that acts as relatively short term bridge finance for a property development or aircraft lease will typically not get refinanced before the business plan says it might, while a personal loan to an individual to buy a car over three to five years may be easily refinanced on a whim.
    Last edited by bowlhead99; 16-04-2019 at 6:13 AM.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

3,521Posts Today

7,507Users online

Martin's Twitter
  • Have a great Easter, or a chag sameach to those like me attending Passover seder tomorrow. I?m taking all of next? https://t.co/qrAFTIpqWl

  • RT @rowlyc1980: A whopping 18 days off work for only 9 days leave! I?ll have a bit of that please......thanks @MartinSLewis for your crafty?

  • RT @dinokyp: That feeling when you realise that you have 18 days of work and only used 9 days of your annual leave! Thanks @MartinSLewis h?

  • Follow Martin