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Tuesday, 14 July 2015

Advice for Peer to Peer Lending beginners wanting to ‘take the plunge’

Question: 'I’m a PRENDING novice living in the UK – So where should I start with this Peer to Peer Lending thing?'

Well, Ratesetter is a great place to start because it gives a reasonable return, has a large volume of loans and avoids the complexities of having to bid for individual loans.  It is also is relatively risk free and has a good track record.  Here are the steps to get started:

  1. Join Ratesetter.  It costs nothing and it only takes a few minutes to register online.
  2. Once you have an account you can transfer your initial investment to the site from your bank account.  I suggest something like £100 to test the water.  
  3. You now need to select a Term (length) for the loan and the interest rate you require.

Interest rates

Here are the terms and the corresponding ‘Market Rate’ interest rates yesterday (13 June 2015):

1 month:        2.6%
1 year:           3.1%
3 year:           4.1%
5 year:           5.6%

Note that these rates are currently low; my average five year rate is around 6.0% and the 5 year rate has gone as high as around 6.7% in the recent past.  Low rates suggest more people are lending, perhaps due to the Greek Crisis and the stock market turmoil?

Market Rate

Having selected the term of the loan, if you bid the market rate then your money will be invested fairly quickly, typically within 24 hours.  If you specify a higher rate then it is likely to take much longer for your money to be invested and the exact time will depend how the market moves.

That’s really all there is to it.  You can either arrange to automatically reinvest the returned payments from the lender, so increasing your investment over time or allow returned capital and/or interest to be transferred to your Ratesetter ‘holding’ account.

This is all very well, but supposing I need the money invested in the 5 year market back in a hurry?

Rapid Cash Withdrawal (liquidity)

With Ratesetter you can access your money on loan at short notice using the ‘Sellout’ function. Sellout will allow you to sell your contracts (loans) provided there is a new lender available to match your existing loans.   I’ve never used Sellout and am content to withdraw my capital and interest as it becomes available to invest at higher rates elsewhere.

Alternative to Ratesetter

An alternative, if you feel the Ratesetter market rate is too low, is to invest in the Assetz Capital Green Energy Income Fund that returns 7% and you can normally withdraw your funds very quickly.  This is mentioned in more detail in another post:  Assetz Capital Green Energy Income Fund

Higher Rates

Of course, once you've you are familiar with Peer to Peer Lending, you can earn far higher rates on sites such as Saving Stream or Money Thing.  I'll be covering these platforms in future posts.

Until then, happy lending!

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