lending money as an investment

[cymtriks]

Does anyone lend money via companies like Zoppa or Funding Circle?

I am looking after money for an elderly relative and still have some to invest.

Has anyone actually got the rates that are advertised? Can anyone explain why, despite doing what banks used to do (pay interest to savers by charging interest to lenders), they offer massively greater returns? Why aren't traditional banks and building societies offering the same system? In other words, am I missing something that would make me think twice?

[groak]

There's an ENORMOUS demand for money just now from both business and private sources. You should definitely give it a try. Banks aren't really very good at skilled lending. Lending's much more of an art than a science, so a formulaic approach (as banks use) has a much lower chance of success. That's why there's a massive gap in the market to satisfy borrowing demand.

There are really so many very good risks which banks won't touch. And particularly with short term requirements the rates can be relatively high.

[johnfm]

I like the idea of it - but if I can get 6% divis from a bunch of shares and capital growth over the long term, I can't help but look at equity investing.

Though clearly a different risk profile.

Does Funding circle allocate your loan funds to diversify risk or do you have to do it yourself?

[ringram]

Funding circle sucks. Zopa is better, Im only just above break even on funding circle and I increased my rate to cover risks and also only stated I wanted A rated loans.

Zopa has worked out fairly well, but as you say with corp dividends around the same level they represent a better risk profile. I got into Zopa early (many years ago) when rates were higher, Im in the process of winding out. There is too much capital risk IMO. Also there is no tax benefit and losses cannot be offset against gains. Again therefore zero point.

Move on to something else like SIPP or ISA wrapped. My 2p.

That being said in my experience 5% from Zopa is possible. Just dont get hung up on the late payments and bad debts, just look at the bottom line.

[GTIR]

I'm with Zopa and RateSetter.
RateSetter has a contingency fund and has had a zero loss from customers. It's monthly rate is 3.5%, which is what I'm on.
Zopa's default rate on A rated loans is something like 0.5% or something.

Worth a punt.

[sideways sid]

Peer-to-peer lending is a great idea, but returns will be low in a low interest rate environment and we have had historically low base rates for a few years now.

Zopa et al will make much more sense as an investment/asset class when base rates are higher.

[ringram]

sideways sid said:

Peer-to-peer lending is a great idea, but returns will be low in a low interest rate environment and we have had historically low base rates for a few years now.

Zopa et al will make much more sense as an investment/asset class when base rates are higher.

Why?

Other assets will also offer better returns in that instance. I cant see the additional margin of return increasing in better times. Why would it? Its an arbitrage target.

[Cheib]

If you have enough money corporate bonds are a good place to look....I bought some bonds issued by the Italian equivalent of BAe a couple of months ago that yielded 8%....Finmeccanica is BBB rated defence company with lots of state contracts. Yes it's Italian but they aren't going bust in the next five years. Not bad when you are getting close to zero in a deposit account. You can of course buy a corporate bond fund instead of a specific company.

[ringram]

True, but what about currency risk?

But I like the idea of corporate bonds anyway. Agreed.

[Cheib]

ringram said:

True, but what about currency risk?

But I like the idea of corporate bonds anyway. Agreed.

The bonds were issued in sterling so no currency risk at all.........they are actually 7 yr bonds having just checked.

Obviously these can be sold at any time too....unlike a loan to an individual. You may obviously make a loss if you sell them before maturity depending ont he current market though.

[Dave 500]

I've had a bit of a play with funding circle.

I only have £1700.00 in there at the moment which I payed in over a year.

My stats are:

Current Gross Yield 8%
Earnings £72.66
Fees £9.22
Losses -£19.03
Net earnings £44.41

I have 74 loan parts mostly £20.00 and some £40.00

Is it a good idea I'm still not sure but I like the idea

[Cheib]

Dave 500 said:

I've had a bit of a play with funding circle.

I only have £1700.00 in there at the moment which I payed in over a year.

My stats are:

Current Gross Yield 8%
Earnings £72.66
Fees £9.22
Losses -£19.03
Net earnings £44.41

I have 74 loan parts mostly £20.00 and some £40.00

Is it a good idea I'm still not sure but I like the idea

So you have made £44 interest over a year on £1700 ? That's 2.5%! Or am I missing something.

[Dave 500]

Cheib said:

So you have made £44 interest over a year on £1700 ? That's 2.5%! Or am I missing something.

The £1700 was not put in all at the same time, I think in the first six months I probably only had between £200-£500 in the account.

[sideways sid]

ringram said:

sideways sid said:

Peer-to-peer lending is a great idea, but returns will be low in a low interest rate environment and we have had historically low base rates for a few years now.

Zopa et al will make much more sense as an investment/asset class when base rates are higher.

Why?

Other assets will also offer better returns in that instance. I cant see the additional margin of return increasing in better times. Why would it? Its an arbitrage target.

Fair point.

I didn't make my point clearly. I meant that it is preferable to lend/invest on a fixed-rate basis when interest rates are expected to fall from a high current level, rather than do so when rates are at a historic low and more likely to rise during the 3/5yr term.

This is particularly true when the real net return after inflation and tax is not much higher than can be achieved risk-free on cash with instant access.

[ringram]

Yep, which is why Im getting out now while rates head lower..

[ringram]

Cheib said:

The bonds were issued in sterling so no currency risk at all.........they are actually 7 yr bonds having just checked.

Obviously these can be sold at any time too....unlike a loan to an individual. You may obviously make a loss if you sell them before maturity depending ont he current market though.

Nice then. I missed the oppo a while ago to buy Irish Govt at 19% yield. I was too scared

[Cheib]

ringram said:

Cheib said:

The bonds were issued in sterling so no currency risk at all.........they are actually 7 yr bonds having just checked.

Obviously these can be sold at any time too....unlike a loan to an individual. You may obviously make a loss if you sell them before maturity depending ont he current market though.

Nice then. I missed the oppo a while ago to buy Irish Govt at 19% yield. I was too scared

We all have regrets like that....anyone who doesn't is probably being economical with the truth. There will always be more opportunities!

[Cheib]

Dave 500 said:

Cheib said:

So you have made £44 interest over a year on £1700 ? That's 2.5%! Or am I missing something.

The £1700 was not put in all at the same time, I think in the first six months I probably only had between £200-£500 in the account.

That makes more sense then. What do they say the expected returns are ? Do they give you an idea what % of losses you should normally expect ?