Peer-To-Peer Lending e.g. RateSetter

Discussion in 'Other Asset Classes' started by KrustyDaPizza, 20th Jan, 2018.

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  1. Redwing

    Redwing Well-Known Member

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    Hi @PandS

    Can you please expand on the above?

    I have a small allocation to bonds, though this is via an index (KISS)
     
  2. PandS

    PandS Well-Known Member

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    ASX Companies issues corporate notes (debt) for their business and these bonds are often trades on ASX, they usually refer to as hybrid securities, unless the companies goes belly up you get your interest paid quarterly usually BBSW +/- extra 3 - 7% depend on the profile of the business.

    you rank above share holders, you get interest payment before their shareholder dividend they can cut dividend but they usually have to pay notes holder.

    Company goes belly up you are creditor one rank higher than share holder which ins't much in scheme of thing.

    so higher risk than your term deposit hence higher rate

    but you make sure you don't get risky bond you get Woolies or CBA or ANZ notes etc...

    Here you can learn more infor, most notes have face value of $100 and it trades on the ASX above or below face value depending on the condition of the market and the business.

    Hybrid securities (also known as hybrids, convertibles or preference shares) are securities that combine both 'equity-like' and 'debt-like' characteristics.


    so if your notes face value is $100 and it trades at $105, well you made $5 on capital gain as well as whatever interest rate you getting and vice versa it trades at $95 then if you need to exit you lose $5 on the notes.
    You don't have to trade to get out, that is an option only, you can hold till maturity and they paid you back face value or roll over to next term, some notes roll on forever so can hold indefinitely if you happy with the rate, read the term of each notes and understand it

    your interest rate doesn't change, well it does depend on BBSW ... as that is the based and then, they add the extra few fix percentage point on top, that fix rate on top doesn't change but the BBSW can change as it based on market Bank Bill Swap Rate but all in all your get decent rate above 5-6%

    I used to own Woolies and CBA notes get good rate and a nice kick of capital gain as interest rate dropped these notes becomes highly valuable and so you made good capital gains on them.

    Here is a list, you can type the 5 character codes in your share trading platform and it show you the price... most face value of $100 as your reference point
    Security Prices Hybrids

    also not sure if you know about ASX convention? all 3 letter codes are ordinaries shares, anything outside three codes are not shares, they are hybrid products or warrant or options etc... that has condition attached.
    I got a friend nearly get wipe with that sort of mistake I have to explain to him these are not shares when you buy them you got to read the condition attached.

    Say you interest in CBAPD series this is their term and conditions, each series has different term, conditions and rates etc...

    Shareholder - Securities - Perls VII - CommBank
     
    Last edited: 11th Sep, 2018
    Redwing likes this.
  3. PandS

    PandS Well-Known Member

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    Redwing likes this.
  4. fedex

    fedex Active Member

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    The problem is that you need to have it for 5 years to get a respectable rate but the risk of someone defaulting in 5 years is higher than 1-3. The rate they provide is not transparent and is actually if you reinvest all the repayments rather than hold on to them.
     
  5. Trainee

    Trainee Well-Known Member

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    Now wonder how these will perform?
     
  6. marty998

    marty998 Well-Known Member

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    There are lender supply problems in the one-month loan market.

    These loans are made to borrowers for a term of up to 2 years, but lenders lend on a month to month basis. The way it works is that the lender gets their money back after 30 days with interest, but only if enough replacement lenders are in the queue to "refinance" the loan and pay back the existing lenders. The new lender then gets the next month's interest from the borrower.

    At the moment there are *seemingly* not enough replacement offers, so the existing lender is waiting longer than 30 days to get their funds back.

    Looking at the offers however, it appears to me there are enough, however the Ratesetter system is not sweeping them, seemingly in a deliberate effort to keep the matched interest rate low.

    I think its a little disrespectful to lenders to be honest. It is also going to cause a bit of panic if lenders are not receiving their funds back on schedule. This will lead to more withdrawals and less willingness to lend, which will defeat the purpose of what Ratesetter is trying to do to moderate the system and remove the volatility in the interest rates to borrowers.