Here is a simplified breakdown of current UK Peer to Peer lending platforms:
- Simple: For example, Ratesetter/Zopa
- Intermediate: For example, Funding Circle
- Complex, Asset-based: For example, Assetz, Savings Stream or Money Thing
Kangaroo
Roo is an extremely low-fat meat so it’s easy to overcook and dry out. My meat, cut into strips, served over a bed of mash potato, topped with a red current sauce/red wine sauce, was rare in the middle and medium on the outside. Perfection!
Incidentally, cooking is a lot like the current Peer to Peer scene in the UK; lots of ingredients and dishes and loads of opportunities to try new things and enjoy creating unexpectedly satisfying dishes (or, in the PtPL case, a healthy cash return!).
Funding Circle
As the bidding proceeds, the highest interest rate bids are eliminated so at the end of the auction the borrower hopefully gets a rate that meets their expectation. If the overall interest rate is too high then the borrower can reject the loan.
In this model, the risk lies with the lender. Loans are banded from A+ (low risk) to E (High risk) and each band has an expected failure rate. So, for example, an A+ loan for which I bid 10.6% carries a statistical risk of failure of 0.6% (plus a lending fee of 1%) so my actual return, statistically is 9%.
Diversify
The key thing with FC is to diversify. In other words, spread your cash across many borrowers. People who complain of unexpectedly large losses on FC have usually failed to spread the risk. On this platform, you need to take responsibility for risk. Funding Circle recommends that ideally each loan bid should be 1% or less of your total platform lending. So if I lend £2000 then I should ideally put only £20 on each loan (1% of total invested).
Hopefully that’s enough info to wet your appetite regarding Funding Circle. Each of these platforms provide a good summary of how they work so the best thing to do is tuck in, ie create a free account and make a £20 bid and see how you get on.
In my next post I’ll give you some more information on Funding Circle and introduce the idea of the Secondary Market (one alternative to auctions).
Hopefully that’s enough info to wet your appetite regarding Funding Circle. Each of these platforms provide a good summary of how they work so the best thing to do is tuck in, ie create a free account and make a £20 bid and see how you get on.
In my next post I’ll give you some more information on Funding Circle and introduce the idea of the Secondary Market (one alternative to auctions).
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