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realspeed
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03-05-2019, 11:59 PM
11

Re: Better than Premium Bonds ?

those percentages you quote are before tax I presume Realist. It is better to quote after tax deductions for a more realistic return on your money. Also you have not mentioned what commission these Peer to Peer companies charge.

Quoting things like " rates of 4.9%, 5%, 5.3%", but that is not what you actually get back in your pocket

It all sounds great until one dives into the actual financial details, and then you get a completely different result.

Then there is also the risk of even getting any return on your investment. Lending money via a third party to someone needing money that can't get it through normal channels looks like a huge risk factor to me
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04-05-2019, 08:09 PM
12

Re: Better than Premium Bonds ?

Originally Posted by realspeed ->
those percentages you quote are before tax I presume Realist. It is better to quote after tax deductions for a more realistic return on your money. Also you have not mentioned what commission these Peer to Peer companies charge.

Quoting things like " rates of 4.9%, 5%, 5.3%", but that is not what you actually get back in your pocket

It all sounds great until one dives into the actual financial details, and then you get a completely different result.

Then there is also the risk of even getting any return on your investment. Lending money via a third party to someone needing money that can't get it through normal channels looks like a huge risk factor to me

This sounds like you haven't really looked into P2P lending TBH.

Tax

https://www.4thway.co.uk/guides/how-...lending-taxed/

"Most people pay no income tax, because peer-to-peer lending is included in the Personal Savings Allowance. That’s £1,000 tax-free interest for basic-rate taxpayers and £500 for higher-rate payers.

Basic-rate taxpayers will usually need to lend over £10,000-£30,000 to be charged taxes and higher-rate payers over £5,000-£15,000.

You pay tax at your own income-tax rate on any interest earned above the savings allowance."

Commission

Ratesetter don't charge any commission as such. They simply manage the market by matching lenders with borrowers. They make their cut in the middle. i.e. If I choose to lend at 5% then they might match my money to people wanting/willing to borrow at 5.5%. I always get my 5%. Ratesetter get the difference between the lending and borrowing rate. Pretty simple. I can not lose out.

Interest Rate

Originally Posted by Realspeed
Quoting things like " rates of 4.9%, 5%, 5.3%", but that is not what you actually get back in your pocket"
No you are wholly incorrect in that statement.

You DO get EXACTLY what you specify in interest.

You choose your own interest rate, whatever you like. Once chosen your money sits in the "pot" waiting to be matched to a borrower. It will either be matched, or it won't. That depends on how realistic your specified interest rate is.

Once your money is matched that's it. You WILL get the interest you specified. That's how it works.

Risk

Originally Posted by Realspeed
Then there is also the risk of even getting any return on your investment. Lending money via a third party to someone needing money that can't get it through normal channels looks like a huge risk factor to me
It is quite possible that borrowers might default on their loans but this is Ratesetter's problem. If a borrower defaults then the money is paid to the lender anyway out of the Provision Fund. The fund has many £millions in it.

The Provision Fund is constantly monitored against all loans and market conditions and is adjusted accordingly. Ratesetter expect a certain level of defaults and manage the fund accordingly. If there are more defaults than expected then more is put into the fund.

As I said in my previous post, it would take a very significant event to cause a situation where there were mass defaults which the fund could not cater for, such as another global financial crisis. Even if that were to happen, any amounts owing would be spread across ALL lenders so no-one takes any massive hit.

The risk factor for ordinary savers is therefore tiny, virtually nil. That's why to date, after many years of operating, no-one has ever lost money with Ratesetter.

Borrowers

Originally Posted by realspeed
Lending money via a third party to someone needing money that can't get it through normal channels looks like a huge risk factor to me
Again you fail to understand this market.

This is not a market for borrowers who can't get loans through normal channels. It's a market for people who are sick of being ripped off by the regular banks and financial city boys and thus who realise they can borrow money at better rates than the banks offer. There are a wide range of people borrowing money via Ratesetter, some are ordinary domestic folk , others are big property companies who borrow significant amounts with their properties as security, others are large manufacturers and so on.

This IS NOT any kind of PayDay "Quick quick think" loan company.

This is a serious financial market, just like stock markets with a mix of lenders and borrowers all looking to beat the regular banks and institutions that rip us off habitually.

It's a brilliant idea TBH. Power to the people !
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04-05-2019, 09:53 PM
13

Re: Better than Premium Bonds ?

Originally Posted by Realist ->
Other P2P companies don't have a Provision Fund, so there is more risk and a level of borrower defaulting has to be taken into account, but as a consequence the overall interest rates are much higher.
Rate Setter may have that 'Provision Fund' now, but there is no guarantee they will keep it. Funding Circle has invoked huge criticism because they overnight withdrew the facility for lenders to pick the companies they wanted to lend to (e.g. pick local companies to where you live so you can actualy go to firm and see how they are doing) Now Funding Circle puts your money in a 'pool' and you don't know who you're lending too.

Also in the last year the 'Default Rate' has increased dramatically and I think the trend is towards more (not less) defaults in the next few years. P2P worked well after the financial crisis but things change. Ratesetter may be the best of the bunch but I wouldn't consider any P2P lender now.
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04-05-2019, 10:03 PM
14

Re: Better than Premium Bonds ?

Originally Posted by Realist ->
Risk

If there are more defaults than expected then more is put into the fund.
And where exactly does this money come from ????

And where does it say that the 'Provision Fund' will always be maintained and more important ring fenced in law so no future directors can change the rules and just overnight abolish the fund.

Not the same firm but Funding Circle just decided to change the terms to lenders overnight, Rate Setter could do the same.
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05-05-2019, 02:15 PM
15

Re: Better than Premium Bonds ?

Originally Posted by Losos ->
And where exactly does this money come from ????
The Provision Fund money comes from all the borrowers. An element of the interest they pay goes straight into the find.

Originally Posted by Losos ->
And where does it say that the 'Provision Fund' will always be maintained
Here:

https://www.ratesetter.com/invest/in...provision-fund

"For an added layer of stability, we created the Provision Fund. The Provision Fund has a 100% track record over 8 years ensuring that no investor has lost a penny. "

"The Provision Fund grows along with the portfolio size and repayments made by borrowers. The money that is in the Provision Fund is a buffer to protect your investment. It does this by automatically reimbursing you if a borrower’s payment is missed."

"We manage the size of the Provision Fund so that there is more money in there than all the expected missed payments by borrowers. We continually monitor the performance of loans and our Provision Fund and if needed we can make adjustments"


I wouldn't recommend any other P2P lender because they are wide and varied and don't have provision Funds.

The entire P2P concept is now a huge industry and it's continuing future depends on its credibility. If there were mass defaults resulting in lenders losing out the industry would simply collapse.

Other P2P companies do not have the safety factor of Ratesetter. As a result they offer better interest rates than RS to account for the increased risk.
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05-05-2019, 02:20 PM
16

Re: Better than Premium Bonds ?

Originally Posted by Losos ->
Now Funding Circle puts your money in a 'pool' and [B]you don't know who you're lending too.

Ratesetter works the same way.

Effectively you are lending your money to Ratesetter and they in turn manage how those funds are issued to borrowers. As a lender I have no idea who my funds went to nor am I remotely bothered PROVIDED I can have confidence that they are not lending money out to people who can't afford to repay and so on.

On that specific issue, Ratesetter's criteria for lending is quite stringent as they say here:

"Some other peer-to-peer sites let you judge the potential borrowers so you can make a decision about a specific borrower or types of borrowers.

At RateSetter we do the work for you – we take borrower applications, vet them, and take a Credit Rate from successful applicants which grows the Provision Fund. We think this is a simple way of managing risk.

The Personal and Commercial borrowers who are accepted are creditworthy and have been rigorously assessed by our specialist Credit Underwriting Teams against stringent criteria. We carefully examine their credit file, personal or business finances and circumstance to understand their financial position and ability to service the loan. The majority of loans are unsecured but we also write some secured loans.

We don’t judge simply on the basis of how much they want to borrow: it is very important to understand whether the loan is affordable for the borrower in the context of monthly personal or business outgoings.

This stringent process means that we actually decline the majority of applications. Those who are accepted are exactly the people or businesses that our investors would expect: creditworthy borrowers who can sensibly afford a loan"


I therefore have confidence to lend my money knowing that borrowers have been stringently vetted and knowing that either way there exists a multi-million pound Provision Fund to repay any defaults.
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05-05-2019, 02:25 PM
17

Re: Better than Premium Bonds ?

extract from their web page

Capital at risk. No FSCS protection. Past performance is not an indicator of future results.

To me that says it all
Realist
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05-05-2019, 06:21 PM
18

Re: Better than Premium Bonds ?

If there is risk, it has to be declared. Obviously.

The key to investment is not to rail with knee jerk reactions to such statements but to simply understand what the risk is and manage it.
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05-05-2019, 06:33 PM
19

Re: Better than Premium Bonds ?

Note also that the Premium Bonds website states this:

Remember that if inflation is higher than the account interest rate, it will reduce the true value of the money in your account over time.

Hmmm oh dear ! The value of my money will lose value if sat in Premium Bonds?!
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08-05-2019, 04:00 AM
20

Re: Better than Premium Bonds ?

Originally Posted by Realist ->
Note also that the Premium Bonds website states this:

Remember that if inflation is higher than the account interest rate, it will reduce the true value of the money in your account over time.

Hmmm oh dear ! The value of my money will lose value if sat in Premium Bonds?!
As Stated before the money in my ISA paid .80 % so with drew and put in to PB at 1.4%.

Five months into it have had a return better than my ISA.

No way would I risk my money in these con ventures you love
 
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