Ratesetter, one of the original peer-to-peer lending platforms, is doing a thing at the mo' where if you use someone's referral link and invest £1k for a year you get £100 cashback plus the standard three percent interest rate - an effective 13% AER. (They also get £50 added to their account, once you've invested £1k.) I've given it a shot, but wondered if anyone had done it in previous years and had any comments? For them as haven't, it's basically a thing where you throw money at it and it's split into little chunks and lent out to people who can't get a loan through their bank. They repay at a lower rate of interest than a traditional loan outfit would charge, you receive a higher rate of interest than a traditional savings account would give you, and the company skims a percentage off the top. A couple of the peer-to-peer sites have gone bust recently, but Ratesetter's been around a while - and, the thing that made me sit up and take notice, uses some of its skim to set up a fund so that in the not-unlikely event that one of these poor credit risks absconds with the dosh the investor still gets both the invested cash back *and* the lost interest. Apparently they've never failed to do so. However, deposits in the thing aren't FSCS protected, so if Ratesetter itself goes mammaries-skyward you've lost the lot. There's also a new thing - introduced today, in fact - where you have to agree to invest no more than ten percent of your net worth excluding primary residence in P2P lending services - though that's a voluntary self-certification thing, and given the lack of protection sounds pretty sensible.
Sounds interesting, I might have to look into this a bit more. I like the concept, and the return looks good too.
The lack of FSCS protection is the big risk: these sorts of operations can go from cashflow-positive going concerns to "oh $#!&, we're insolvent now" within the span of a month and with basically zero external warning. As all their assets are basically a collection of small debts (and to at least mildly questionable debtors), the chances of an administrator or receiver being recovering sufficient number to both pay back to investors and then filter any excess down to customers is pretty low. Though as with crowd & VC investment (or crowdfunding): risks are high, payoff is high. Treat it as a bet (i.e. only do it with money you could afford to lose) rather than like buying shares or a savings account and you'll have the right mindset. Personally, that's prompted me to check how the "innovative finance ISAs" are doing now and it looks like there are actually some available (when they launched nobody actually offered any), so I'm going to be giving Ratesetter et al another look over.
A mate of mine has (or at least had) a few k with Zopa. Returns were pretty tasty iirc but that lack of FSCS protection makes the whole thing a bit too risky for my liking. I'm sure Zopa also has/had the whole cash reserve to reimburse you in the event that your lendees default, but as Gareth says, that's naff all help if Zopa itself goes bye-bye.
Been using Zopa for over 7 years. First a standard P2P investment then an innovative ISA. Rates used to be market leading given the risk. Risk has dropped a little as the sector got more mature but rates have dropped significantly. Also used funding circle and a few others many years ago. Steady 4.2% in the ISA for the last couple of years but after withdrawal fees it's 3.2%. Getting money out of all of the platforms is hard! In my experience it is a process that takes up to 2 weeks to withdraw 95% of investment and months to get the rest. Personally I have just withdrawn all of my deposits as the risk to average return is simply not worth it anymore imho.
Lend us a tenner @Gareth Halfacree I'm good for it, honest guv. But P2P, could be worth the risk but don't expect us to bail you out the Bank of G if it goes belly up
Has this been show to be sustainable? It feels like it could set up a tipping point where the company can't sustain payments as their loans fail over time.
Yes and no. Yes, in that Ratesetter launched in... 2009 and hasn't gone bust yet. No, in that a couple of Ratesetter-like companies recently went belly-up. Meanwhile: 3p profit already! I'm rich! RICH, I TELLS YOU!
Zopas 'safeguard' fund stopped in 2017. I assumed it's because the number of defaults was higher than they thought or it became too much of a risk to their bottom line and shifted the risk onto users. Maybe part of them trying to get the banking license? I can't imagine any fund that would survive if they started to see 50% defaults. Suspect even 10% would be cause for concern.
