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Peer to peer lending
Lucy O
Posted: 16 October 2012 18:17:56(UTC)
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Hello. I have just signed up for Funding Circle but not yet done any 'funding' as wonder whether it requires too much supervisory time...Any comments? Or any one on here who has used one of these non-trad 'banks'.? Grateful for your comments
P L
Posted: 16 October 2012 22:06:04(UTC)
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I've not used Funding Circle but do use Zopa and Ratesetter who lend to individuals rather than companies. I note you use the words non-traditional banks - it is important to understand they are not banks, there is no FSA protection and all you cash is at risk so you have to be in a position to accept you might lose it (albeit the chance is low provide the loans are spead about).

If loans are being paid back monthly then you do need to keep on top of it otherwise your interest rate is reduced as your money sits around doing nothing. Lately I've been using Ratesetter more than zopa for two reasons 1) they have a monthly loan period with auto reinvestment which allows the money to earn something and 2) bad debts are covered initially from a provision fund which is generated from an extra charge on the borrowers. In the event of bad debts they aim to first return capital to effected lenders and then interest. Under Zopa you are at the mercy of the borrower you happen to be paired with, some lenders may never see a bad debt whilst others might have all the loans go bad - simply by luck of the draw.

Personally I prefer funds / shares when it comes to companies simply for the reason that if I'm prepare to have money at risk then I want the best risk/reward characteristic and an unconstrained upside.

Clive B
Posted: 16 October 2012 22:14:47(UTC)
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Lucy O

I'm been lending on Funding Circle for about 15 months. Two ways to lend.

First is auto-bid where you define the minimum rates you're happy with per risk category and the maximum amount you wish to lend to any one company (as a percentage of your total amount, e.g. 0.5%). I haven't used auto-bid but it would seem to require almost nil effort of the part of the lender. Downside would seem to be that you might lend to all companies, regardless of their profitability.

Other way is to place each bid manually, i.e. check the company finances, credit score etc., decide whether to bid and how much, then place the bid(s). Good point, you can avoid companies you don't like (e.g. bad finances). Bad point, yes can be a bit labour intensive. I use this method as I'm not happy to lend to all companies regardless of (bad) finance, credit scores etc. I want to keep my money spread over a large number of companies. I keep the bids small as it makes them easier to sell on the second hand (loan parts) market.

Clive
pqrdef
Posted: 17 October 2012 01:31:21(UTC)
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If you want to study all the listings to try to pick winners - avoid losers, anyway - yes, it will be very time-consuming. And it's likely that you won't improve your odds very much. No loan is safe - all of these businesses are vulnerable to bad luck, but you don't know which will be unlucky.

Plan B is to say "they won't all be unlucky", turn a determined blind eye to the "prospectuses" and rely on diversification to manage risk. £2K will buy £20 slices of around 100 different companies. That's not enough to guarantee average luck, but it shouldn't be disastrous unless the whole economy tanks. This wouldn't be the place to bet against the economy.

You can still spend a lot of time trying to squeeze the best possible returns by bargain-hunting. Bargains do crop up, from auctions that close early and from over-generous sellers. But if you skip that and settle for general market rates, you can still get a decent portfolio with a lot less effort.

One systematic session in the secondary market may be enough. Sort the list by descending yield, filter by one grade at a time, and tick the top-yielding small slice of each loan. Click on Buy Now at the bottom of each page and stop when the yields get too low.

Then set up the autobidder to relend the repayments, and come back in a year.

Well not quite. There is the possibility of coming back to a big cash pile if your relending rates are unachievable. So have a quick look in periodically and go shopping in the market with any surplus cash.

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Guest on 06/06/2013(UTC)
Clive B
Posted: 17 October 2012 08:36:09(UTC)
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I agree with P L - FC is NOT a bank, so you should treat your money as being at risk as much as you would with (say) shares.

One thing that you may forget is that any money you make on FC is treated as interest and liable to tax. The loans can NOT be held in an ISA and hence can't be free of tax. Due to that and some bad debts I've probably halved my money in FC over the past couple of months. I'll put it into investments where any gain is subject to CGT - which I won't pay due to not tripping the threshold !
P L
Posted: 17 October 2012 08:53:18(UTC)
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Continuing Clives point about the interest being taxable, it is also important to note a loss is not tax deductable as far as I understand the rules so cannot be offset against gains unlike when investing in shares/funds (albeit only in reality if your are liable to CGT).
Clive B
Posted: 17 October 2012 09:14:15(UTC)
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P L - that's my understanding as well, you pay tax on interest received rather than on "profits - bad debts". Would be far more attractive to me if loans could be held in an ISA, or the whole thing came under CGT rules as Corporate Bonds do
Lucy O
Posted: 17 October 2012 10:50:01(UTC)
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Thanks very much to you all for your considered replies. Most grateful, but think I will be holding off p to p lending until I have more time....
gordini
Posted: 18 October 2012 14:02:49(UTC)
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Just moved all my funds out of funding circle. I have lost a fair bit.

Compare that with Zopa where I have averaged around 6.5% a year. and only 1 default loan in 3 years.

Very pleased with zopa. But keep your loans down to 10 gbp per person.
Clive B
Posted: 18 October 2012 17:17:24(UTC)
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gordini

What percentage of your money did you lose ?

I've currently got about 3% of my money "frozen", in that it can't be sold on the second hand loan parts markets because the loans have had their risk bands removed due to late/non payment. I've already halved the amount I have in FC and if that total increases, it'll be bye bye FC !
banjofred
Posted: 20 October 2012 11:37:44(UTC)
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My Grandmother told me

Neither a lender or a borrower be.

Has stood me in good stead, as I sleep nights
Clive B
Posted: 20 October 2012 16:23:45(UTC)
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banjofred

Must make it hard to buy a house
gordini
Posted: 22 October 2012 13:23:49(UTC)
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Clive B;16616 wrote:
gordini

What percentage of your money did you lose ?

I've currently got about 3% of my money "frozen", in that it can't be sold on the second hand loan parts markets because the loans have had their risk bands removed due to late/non payment. I've already halved the amount I have in FC and if that total increases, it'll be bye bye FC !


Clive

I lost around 10% and the 6.5% i would have made in zopa.
2 users thanked gordini for this post.
Clive B on 22/10/2012(UTC), huudi on 13/01/2013(UTC)
Allen Holmes
Posted: 07 January 2013 11:16:53(UTC)
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Joined: 07/01/2013(UTC)
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Lending by group might be consider when borrowing some cash. But just a a tip for you, please apply for a reliable and responsible lending institution near you. Loan sharks are just around and you might be a victim. In fact, A ton of governments are working hard to do away with payday loans as much as possible through different caps and limitations. This is only a problem because people are likely to keep borrowing. It is better that somebody borrow cash through a governed business than through some loan shark on the streets. Continue reading here...
huudi
Posted: 13 January 2013 17:09:17(UTC)
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banjofred, well said, but due to lousy interest rates we have to choose between risk that we don't want or losing to inflation.
I would like the job of B of E Governor, seem that anyone could sit on their butt and do what the chancellor told him.
Mike Leigh
Posted: 23 March 2013 15:07:13(UTC)
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Joined: 23/03/2013(UTC)
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Clive B - when you say you already half the amount you have in FC, I see you have lost half your money since you started lending in FC?
Clive B
Posted: 24 March 2013 16:54:52(UTC)
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Mike Leigh

I assume you're referring to when I said this: "Due to that and some bad debts I've probably halved my money in FC over the past couple of months"

No, it doesn't mean FC lost half of my money. What I should have made clear was that when I saw bad debts starting to rise, I voluntarily sold - on their "secondhand loans" market - half of my loans and withdrew the money. Since then, I've actually sold all of the loans I could and taken all of the money I could out of FC.

I believe I made about 4% AFTER allowing for bad debts, but that's BEFORE tax. True that 4% before tax is better than I'd get in a building society, but I was hoping it would be comparable to the return from a Corporate Bond fund - slow steady growth with a little risk. However, my money in Corporate Bonds probably grew at twice that rate and was tax free (either because it was in an ISA, or simply because I didn't sell it and suffer any CGT). The other annoyance with peer-to-peer lending, apart from paying income tax on gains (rather than CGT), is that you can't write bad debts off against profits.

I've still got some money stuck in FC. It's lent out to companies that aren't repaying on time or at all, so I can't sell the loans on. Unlike some people, I did come out ahead (4%), whereas others actually lost money.

As with all investments, I guess the moral is - be aware of the risks and have an exit strategy in case things go worse than expected (against whatever your measure of success is)
1 user thanked Clive B for this post.
gggggg hjhjkl;' on 24/03/2013(UTC)
Happyp2b
Posted: 25 March 2013 12:04:28(UTC)
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Joined: 18/03/2013(UTC)
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[img]http://tinyurl.com/rebuildings[/img]
huudi;17543 wrote:
banjofred, well said, but due to lousy interest rates we have to choose between risk that we don't want or losing to inflation.
I would like the job of B of E Governor, seem that anyone could sit on their butt and do what the chancellor told him.


Hi,

I'm a fan of p2p lending, but I'll concede that it does have its risks, as with any other investment, and on occassions takes a bit more due diligence and management than other kinds of investment.

I have mentioned in other posts how I belive lenders of p2p need to 'play the market' more. What I mean by this is I believe lenders and borrowers should shop around more for the best offers across a number of platforms. Currently lenders on FC are getting poorer rates than they did initially, whilst borrowers are getting better rates than before. On a number of different and new platforms market conditions are reversed. I think p2p investors need to move with the sway of the market between the platforms. When lender rates are low on one site its likely they'll be better on another and visa versa.

It doesn’t serve anyone well to have blinkers on in this sector. It was develop to give people an alternative to the banks, that is more flexible and user friendly. Of course there will be borrowers that are late in making repayments or that default, but the sector allows for this by giving lenders the options to sell out in secondary markets and encourages lenders to do their own due diligence.

FC as market lender to some extent, is viewed by some borrowers in my opinion as a 'fund' due to the loan applications being filled almost immediately in some cases. this is due to the high number of big lenders with autobid set. These lenders do not do their own investigation into the businesses and only rely on the rating given by FC, even though this can be downgraded and is simply an experian score. Its no surprise that more of FC's 'A' rated businesses have defaulted. Having a large portion of lenders on platform that have activated autobid, dilutes the competitive nature of the auctions for other lenders.

I've been lending across a number of different sites more recently and have increased my returns, and hopefully losses , however time will still tell on this as on newer platforms loans have not yet reached full-term . But so far so good.

Funding Circle are not the be all and end all of P2p lending. The sector is still way off maturity, with impending regulation next year set to change the landscape a little, probably making it a more mainstream and secure investment option for lenders.

For those of you that want to shop around Checkout www.p2pmoney.co.uk

or I'd reccommend
FundingKnight, rebuildingsociety.com, crowdcube.com ( I'm aware these are all different variations on p2p lending, if you want a site similar to FC, rebuildingsociety is the closest).






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