Estimated return after bad debt

January 23rd, 2014
P2P Money

There are several "reputable" websites now trying to publicise peer-to-peer lending.  These sites are showing a figure for "estimated return after bad debt".  Unfortunately it is not possible to calculate this figure unless you know the tax rate for the lender.  This is because due to the current - and we believe unfair - tax situation, income tax is applied before bad debt.  There is a campaign to change this, but as yet there has been no movement from the treasury.

If for example, a higher rate tax payer lends money at 10% AER.  Most sites charge a 1% fee, so this will bring their return down to 9%.  As a higher rate tax payer (without a consumer credit license) they have to pay a further 3.6% in income tax.  This reduces the return to 5.4%.  Now lets assume that there is an estimated 3% per annum bad debt.  The lenders net return - assuming bad debt comes it on estimate - is now down to only 2.4%.  The effective tax rate they have paid isn't 40%, it is actually 60%!

The current peer to peer lending rates are visible on the P2P money website.

Zombies attack London

January 16th, 2014

Zombies have attacked London!  Unlike the typical zombie, these type of zombies can seriously affect your wealth.

We are - of course - talking about zombie accounts.  These are accounts which are dead to new funds, and where the interest rates have typically fallen to next to nothing.  Over time inflation is goring it way into the purchasing power of your funds.

RateSetter, one of the UK's leading peer-to-peer providers, have been publicising - with graphic effects - zombie accounts and how RateSetter can be the solution.  With 5 year interest rates today at 5.6%, after deductions but before tax, these products can keep the effects of inflation at bay.

As we highlighted previously, with inflation still significantly greater than the Bank of England base rate, savers are effectively loosing money in zombie accounts.  If inflation is 2% higher than your savings rate, then after 5 years your money will have lost just under a tenth of its value, and after a decade it will have lost just under a fifth of its value.

RateSetter is the only established peer-to-peer provider where every lender has received every penny of expected capital and interest.

RateSetter take on zombies

January 13th, 2014

RateSetter have declared war on zombies.  Not the undead, you may be pleased to read, but the type that are all too common these days.  The type that you may well have yourself.  It started life as something decent, something you were glad to have, but over time it has turned ... into a zombie.

These are savings account that are now shut to new business, and typically the interest rate has fallen to next to nothing.  With inflation still significantly greater than the Bank of England base rate, savers are effectively loosing money in these accounts as the fund's purchasing power continues to erode.  If inflation is 2.5% higher than your savings rate, then after 5 years your money will have lost a tenth of its value, and after a decade it will have lost just under a quarter of its value.  Savers have never had it so bad for so long.

RateSetter is suggesting that savers should become "lenders", and with rates up to around 5.5% AER on 5 year loans (rates before tax, but after other deductions), lenders will keep ahead of inflation, even after higher rate tax.  RateSetter is also the only established peer-to-peer provider where every lender have received every penny of capital back.

Here is the press release from RateSetter:

Britons are in the dark when it comes to their savings accounts, and are at the risk of falling victim to so-called “zombie” accounts, new research released today reveals.

Peer-to-peer lender RateSetter commissioned the independent study, which found that 79% of Britons admit to not checking their savings returns against inflation, whilst over half - 52% - don’t know what return their savings account is currently giving them.  

Shockingly, a terrifying 80% of all savings products in Britain are reported as zombie accounts, so-called because of their lifeless returns and that they are shut to new customers. Their rates can fall as low as 0.05% - earning a pitiful 50p a year on savings of £1,000, highlighting the potentially negative impact that not keeping on top of savings can have.

As 63% of Brits revealed that they are prioritising sorting out their finances as a New Year’s resolution, RateSetter set zombies loose in the City of London in an effort to both wake people up to the effects of zombie accounts and shock them into saving their savings.

The zombies caused quite a stir as they terrorised commuters at financial institutions including the Bank of England and the Royal Exchange, and transport hub Liverpool Street Station.

Rhydian Lewis, RateSetter Founder and CEO, said: “Zombie accounts are doing hard-working savers a real injustice. We want to help the public realise this problem and show them that there is a positive alternative to savings accounts, which will give them a fantastic return on investment. Given the economic climate, it’s never been more important to make the most out of our hard-earned money, so we hope our zombies will shock people with ‘infected’ accounts into action!”

RateSetter is a modern finance company, which offers 3.2% on its 1 year bond product. To find out more visit

Zopa introduce Rate Promise

January 9th, 2014

Zopa have today announced they are introducing a Rate Promise which ensures that lenders earn an average return of 5% AER over the lifetime of 5 year loans originated within the offer period.  If lenders prefer a shorter period, Zopa are promising a 4.1% AER return for 3 year loans.

Lenders' money on Zopa will be spread between many borrowers and some will be offered at more than the promised rate, and some at less than the promised rate, but the weighted average rate will be at least the rate they have specified.

Here is the full email:

Kick start 2014 with our Rate Promise and earn an average return of 5% on money you lend for up to 5 years between 9 January and 3 February 2014.

Top up your offer today to take advantage of the Rate Promise.

How does the Rate Promise work?

  • You'll lend money in small chunks to different borrowers. You may lend some of your money at more than 5%, while some may be lent at less than this. The Rate Promise ensures that the money you lend within the Offer Period, for up to 5 years, will earn an average return of 5% over the lifetime of those loans.
  • Rates on Zopa may vary over time and any subsequent lending outside of the Offer Period, including re-lending your repayments, may earn higher or lower average returns.
  • If you prefer lending in a shorter time frame, then you can earn an average return of 4.1% for up to 3 years - same rules apply.

Please read the full Rate Promise Terms and Conditions.

This move by Zopa signals the start of the January / February rise in lending rates as borrowers look to pay off credit cards and other higher interest debts.

Funding Circle pass £200million in loans

January 8th, 2014
Funding Circle

In September 2013 we reported Funding Circle has broken the £150million mark, and less than 4 months later they have passed the £200million barrier.  This is quite an achievement for a company that only started facilitating peer-to-peer loans less than 4 years ago.

Funding Circle have released the following press release:

Today, British investors have reached a major milestone having lent more than £200m to UK businesses through Funding Circle in less than three and a half years.

As the UK’s leading peer-to-peer lending marketplace exclusively for business borrowers, Funding Circle has helped over 3,000 businesses access the finance they need to grow and expand.

Of the £200m total, £130m has been lent out in 2013 alone, creating an estimated 6,150 jobs across the country.

British people and organisations such as the Government, councils and universities, continue to lend record amounts whilst earning inflation beating rates.  The record week for lending was in December 2013, when £5.3 million made its way to businesses across the UK in just seven days.

The exponential growth has led to independent estimations that Funding Circle could account for between 10%-20% of the small business lending market in the next ten years.

James Meekings, co-founder of Funding Circle, said:

“Over the last three years, Funding Circle has provided businesses with a faster, more efficient way of accessing the finance they need. What we are seeing now is not just the emergence of a challenger model but a fundamentally better method of borrowing and lending that will continue to grow in importance over the coming years.”

“Independent research has shown that 77% of businesses that have borrowed through us would come back to us first, over traditional sources of finance.”

Launched in August 2010, Funding Circle enables businesses to access finance independent of their banks, whilst at the same time allowing British people to earn attractive, stable returns for the long-term. This process sidesteps the high street banks with businesses receiving finance in a matter of days compared to up to three months for a traditional bank loan.

To date, more than £200 million of loans have been lent to small businesses across the UK. To be eligible, businesses must have a minimum turnover of £100,000 and have been trading for at least two years.

Once businesses pass Funding Circle’s credit assessment processes, their loan is posted on the marketplace. From here, investors choose which type of businesses to lend to, and bid the amount of money they wish to lend, and the interest rate they want to earn. Investors can bid small amounts, from as little as £20, on lots of different businesses to spread their risk.