Funding Circle takes up more time than the simpler sites like Ratesetter but offers more entertainment (depending on your enjoyment of online auctions) and higher returns. While some of the loans have a guarantor, these are unsecured loans, ie not secured against a tangible asset such as property, so there is a small but real danger of losing both capital and interest. My current personal losses are around 2.7% of the amount invested. This will reduce if more money is recovered but also increase if there are more defaults.
If you don’t like or don’t have time for real-time auctions during the working day (some employers may frown upon using you workstation for this purpose) then Autobid is for you. This enables you to program the FC platform to select suitable loans for you and bid on your behalf. There are obvious disadvantages to autobid, however.
- You don’t get a chance to hand pick the loans
- You don’t know how the auction will go so you have to set the bid interest rate lower in order to stand a fair chance of winning
- It will take longer to get your money invested
The second alternative to live auctions is the Funding Circle Secondary Market. This is particularly useful when you start out and want to build a portfolio of loans fairly quickly. This allows lenders to put their loan parts for sale and other lenders to buy them.
This is a win-win for both buyers and sellers. It introduces liquidity into the market allowing lenders to access their cash before the loan completes and for other lenders to increase their portfolio without having to bid.
Greece and China
It is times like this, with the stock markets worldwide tumbling because of Greek Exit fears and the Chinese markets in free fall, that I’m glad I invested significantly in Peer to Peer. My only regret is that I still have so much cash in a Self Invested Personal Pension (SIPP) invested in stock market funds. Sure, now may not be a particularly good time to sell but, if and when the stock market improves, then it might be prudent to shift more cash away from the markets and invest in Peer to Peer. I’m so thankful that extracting cash from a SIPP is much easier than it used to be!
Good luck with Funding Circle. In my next post I shall introduce you to some platforms that provide asset based loans. Should the loan default then it is secured against an asset such as property or even a plane or a work of art!