Funding Circle to Quit Variable Rate Loans

Peer to Peer Lending remains a very volatile marketplace with constant revisions to platform function and design.  For example, Saving Stream have recently added the very useful pre-funding of loans facility so you don’t pay until AFTER the loan is allocated.

Meanwhile, Funding Circle (FC) have announced that in the next few weeks they will no longer offer Variable Rate Loans, where individual lenders can bid for their own interest rate.  FC argues that this change makes the platform easier to use for both borrowers and lenders.

No more Flipping?

However, fixed rates take away much of the enterprise of buying and selling loans on the secondary market.  The practice of ‘flipping’, where you could buy a loan at a high rate of interest and then sell it at a premium, is largely eliminated with fixed rate bidding system.

This was one of the attractions of FC, particularly to financially-savvy, entrepreneurial geeks who enjoyed gaming the platform while providing a useful service by improving liquidity via a good supply of instant loans.  

So how will the new platform look? 

Well, the new interest rates being offered appear to be lower than many existing lenders would like, although FC may either add 1% or 2% ‘Cashback’ or shift their rates upwards to fund some larger loans.

The major issue I have with FC is the number of ‘downgraded’ loans and the relatively low level of recoveries.  My effective interest rate is somewhat poorer than the FC prediction.  I’m predicted to be making 8.5% but am currently down to 7.8%.  This can obviously shift up or down depending on future failure of rates or recoveries.  Currently I’ve ‘lost’ over £500 with less than £50 being recovered.

Moving On?

The key thing is that most FC loans are not secured against assets so the chance of a full recovery of capital and interest is relatively low.  Fortunately many of my FC loans can be sold at a premium on the secondary market so I am gradually reducing my exposure the FC in favour of P2P platforms offering better interest rates, secured against material assets such as property, land or artworks.

Asset-Based Platforms

Saving Stream offers 12% across the board on property and Ablrate offer 14% on shipping containers while Funding Secure offer a range of interest rates, mainly on property with rates of typically 12-13%.  The trouble is, these asset-based loans are increasingly popular and the demand for new loans is not being fully met. This is NOT helped by FC putting the brakes on their own secondary market and driving their more discerning lenders to other platforms!    

Assetz Capital – yet another new account, the Quick Access Account

Assetz Capital is a site that it full of innovation but the way the site works is complex and sometimes unpredictable.  The latest account is the Quick Access Account (QAA).  This joins the Cash account, Manual Loan Investment Account, Green Energy Income Account and the Great British Business Account.  Yes, that’s FIVE accounts in total, including the cash account.

QAA

The QAA offers (almost) instant access to funds, is secured by a provision fund and has an interest rate of 3.75%.  The clever thing is that as new loans come online or existing loans, specified by the lender, become available, money is automatically transferred from the QAA to one or more of the other accounts.  In other words, Assetz are offering 3.75% interest on cash that would otherwise be parked (with no interest) in the Cash Account.

In the Lab?

For me, Assetz is a kind of laboratory experiment, a prototype or beta site but with real money and real loans.  It reminds me, in some ways, of Funding Circle with its complex secondary market and the ability to bid for your own interest rate.  Mind you, bidding for varied rates on FC will soon be a thing of the past. FC are shortly going over to fixed rates only so the ‘flippers’ and their ‘bots’ will need to find a new home!  More of FC and fixed rates in a future post.

Where am I with Assetz?

I've got bits of cash in the 4 accounts and wait with INTEREST, hopefully 3.75%, 7% or more (Manual Loan Investment Account), to see what cash ends up where and when! Anyway, I look forward to putting more money into Assetz, if and when the algorithms get sorted out and the flow of new loans increases, and I can fully understand what the platform is doing with my cash!