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 !