Peer-To-Peer Lending e.g. RateSetter

Quoted from finder.com.au

Government Guarantee
The Government Backed Guarantee on Deposits was set up to protect investments up to $250,000. They do not apply to funds in peer-to-peer lending as it only applies to institutions authorised by the Australian Prudential Regulation Authority (APRA).

 

The thing with TD is it's a "bullet" investment so you're 100% stuck with TD's fixed rate for 5 years as it doesn't amortise.

With this P2P lending the borrowers pay monthly P&I so you get approx 20% of your capital back every year and that lessens your interest rate exposure as the time progresses, and you can decide to reinvest the P&I instalments received at a rate prevailing at that time.

Assuming straight line amortisation for simplicity, your $10K initial investment is reduced to $2K at beginning of Year 5, you've been collecting $2K every year in the past 4 years and that reduces your rate mismatch exposure as the time progresses.

 

Yes these are all in the PDS etc which every investor should read carefully, so you should decide based on your risk appetite and how comfortable you are with the Provision Fund.

 

I’ve been doing this for 18 months or so and am quite happy with it so far.

There are risks but returns have been reasonably good.

We’re yet to see how the provision fund holds up under higher defaults.

I wrote a rough overview for beginners on my blog if anyone’s interested.

 

grazie gracias merci danke

 

Another product I saw advertised today that in the peer-peer lending space is How it Works | Property Investment | BRICKX . Don't know anything about it specifically but it appears to focus on lending for purchasing property, as opposed to providing for loans. I assume Brickx becomes the landlord and the properties are leased?

Edit: PC has a great search function. Found other posts about Brickx What's the deal with brickx

Throwing it out there for another idea.

DYOR

 

@Mac Fields. Be careful. Brickx is not a lender and doesn’t provide any loans. Not sure why it was brought up when it is basically property share and trading platform.

 

Nah, not looking at it at all. Throwing it out there as another idea for a return on capital invested. Understand that it is totally different in it's approach to ratesetter.

 

This is where I rank Brickx:

Take a $100 note. Finely chop it up until it looks like green parsley. Mix with ice crystals. Smoke in glass BBQ.

pinkboy

 

i think thats a deal breaker for me. you wouldn't have any idea what level of risk your investment is only that of what the platform has told you. which to me is not transparent.

Cheers, Elives

 

Not sure about this product, or whether I would touch it.

But in USA hard money lenders charge property investors 14% on their money. They also hold a lien over their property as a safety net.

We know a few people in USA who are doing this. Worse case scenario you don't get your money back, but you are still covered because you can liquidate and takes funds from sale of property. I think much less risk here.
I thought about it for 5 minutes...

MTR

 

For me the pitiful returns here dont justify the risk. 2.7% for a monthly, I get much more from TD. Ratesetter makes no economic sense to me.

 

is it 2.7% per month or 2.7% p.a?

 

Annualised. So 2.7% is actually 2.7/12

 

Fair enough. I was concerned about this at first too.

One way to reduce risk is to lend out money in lumps - it may go to one person at a time or 10 people. So that way you can control your exposure to each person to some extent.

If you start with a small amount and reinvest the interest you end up with tons of little loans with possibly hundreds and eventually thousands of different people.

As for borrower quality, who says we're any better at judging that than the risk manangement team at RateSetter?

How do you quantify the risk anyway? I'm not sure it's as predictable as we think.

To use the platform is to put it in their hands to an extent, and they've managed it well so far with defaults being quite low and having decent coverage from the provision fund resulting in no missed interest or principal to investors. Over a longer period in the UK where they started, the same has occurred

There are platforms in the US which let you do that, and I've seen lenders try and be clever and pick the 'most creditworthy' borrowers and they've said either it was no better, or they would have been better with the default option.

Not for everyone, but I don't mind it as an ongoing experiment. Wouldn't suggest it should make up a large part of a portfolio though

 

you're basically saying the better option is to lend out your money not knowing who or what it's for. compared to knowing where you money is going.


also none of the funds are secured against any assets so it seems from get go extremely high risk for only 2.7% p.a seems crazy.

Cheers, Elives

 

I'm saying that to use the platform you have no choice but to leave it to the credit risk team. And so far they've done a decent job. That's all we have to go on.

There's been over $2 billion pounds lent in the UK over 8 years and no investor has lost any principal thus far, which ain't bad. But I'm interested to see how the loan books hold up in a recession.

Some of the loans are secured and some aren't.

I've never done the monthly lending. I've only done 3/5 year where the rates are 7-9% p.a.

 

Is the above statement indicating Debt Recycling strategy?

 

I put about 2.5% of my portfolio in Ratesetter, mostly as an experiment and was satisfied with the results. The platform is easy to use and I was reinvesting back everything.

Two things recently put me off ratesetter though.

1. I realised that the advertised rate of return already includes reinvestment of the interest + capital. So actual returns are lower than advertised.
2. Listening to this podcast 216: Avoid This Investment: P2P Lending - Money For The Rest of Us -.
I listened to it a while back but the substance was as follows. The default rates in the USA were much higher than advertised on the most famous p2p platforms, like lendingclub. So, the only reason why returns are currently kind of keeping up is due to the current inflow of capital onto this platforms, thereby temporarily diluting the losses. The podcaster was also saying how even Mr Money Mustache was losing money on his p2p experiment.

In short, according to the podcast, in p2p there are higher than expected defaults, returns for now keeping up due to capital inflows, but lower future returns, if any.

 

If you like this sort of stuff try asx trade corporate bond they pay 6-15% depend on quality of the bond you can even make capital gain on the notes if you buy them at the right time ....

You can also at any time exit your investment