Funding Circle rate change comments

June 24th, 2013
Funding Circle

The change this morning to minimum lending rates has generated a lot of comments, with no less than 177 comments on the thread entitled introducing new minimum bid rates for new loans, most of them against this.  So why would lenders - who would potentially benefit from this - be against this change ?

Firstly, current lenders have found some of their recent loans are at rates below the minimum and will now find it a lot harder to sell them if they wish to.  Secondly some lenders were concerned by the lack of communication, although Funding Circle did state that they did consult with some lenders, but did not want to make this information available to a wider group, as it would have an impact on the market.

Have Funding Circle done the right thing ?  In our opinion - yes - but they could have had a gradual increase from 4% to 10.5%.  Why has Funding Circle done this ?  Over the last year Funding Circle has become a bit of a victim of its own success, and lending rates have tumbled recently, with some lenders offering money at rates that perhaps do not take into account the impact of bad debts.

This will have a short term impact as some lenders voice concerns, but this would prevent a longer term problem if those same lenders found themselves sitting on bad debts that consumed all of their interest and ate into their investments.

Funding Circle raise minimum lending rates

June 24th, 2013
Funding Circle

Funding Circle have raised the minimum lending rate from 4% to between 6% and 10.5% depending on the market.  Funding Circle state this change will "promote a sustainable marketplace for both investors and businesses".  This suggests that the lending rates had dropped to a point where Funding Circle were concerned that lenders were not taking into account the impact of bad debt, which would otherwise have accounted for a significant portion of the interest a lender would recieve.

Here is the statement in full:

Introducing new minimum bid rates

We want lending at Funding Circle to be as rewarding as possible for our investor community. Which is why from 08:00 today (Monday 24th June) we are trialling a different minimum bid rate for each risk band, applicable to all new loan requests.

The previous minimum bid rate for new loans was 4% across each risk band (A+ to C) and these have now been adjusted to the following:

A+    6%
A      7.5%
B      9.3%
C      10.5%

We believe that introducing these minimum bid rates will promote a sustainable marketplace for both investors and businesses.

What does it mean if I place bids manually?

All you need to remember is that there is a new minimum rate you can bid at, which depends on the risk band of a business. This will be the minimum rate you can select on the loan auction page, where 4% was the previous minimum.

What does it mean if I use Autobid?

Autobid will only ever bid on loan auctions at or above your Autobid rate. If your Autobid settings are below the minimum bid rate, Autobid will automatically bid on the marketplace at the minimum rate.

The minimum bid rate only applies to new loan auctions, so if you're buying loan parts from other people, Autobid will buy loan parts at or above your Autobid rate.

You can read more about why we have introduced minimum bid rates and how it will work on our blog.

These changes have been reflected in our updated investor T&Cs (and by continuing to lend through Funding Circle you are bound by these). 

Enjoy lending,  

The Funding Circle Team 

Zopa loans at 4.9% APR again

June 18th, 2013

Zopa, the leading peer-to-peer company in the UK, have loans of between £8000 and £15,000 over 36, 48 and 60 months at a record low of 4.9% APR for an A* borrower.  This is an extension to previous offer from May.  This is a market leading rate and should attract a number of borrowers.

Lenders need to relend

June 18th, 2013
P2P Money

There was a recent comment on the P2P money blog suggesting that the interest rates on peer-to-peer companies are misleading.  Here are the full comments:

Peer to Peer lending is not all its cracked up to be and the rates are misleading. If you lend £10,000 for 5 years at 5%, you will receive a fixed payment every month that consists of both capitol and interest. But as the capitol decreases you only get 5% interest on what is still owed. So month after month the fixed payment is more capitol repayment and less interest. Lending with Rate Setter, a £10,000 loan at 5% gives a Net return (after fees) of £11,296. A 5 year Fixed Rate Bond with interest at 2.44% AER will give the same return. The only way to beat these rates is to loan to the high risks borrowers.

This is true, but with peer-to-peer lending, you need to relend your funds as soon as they are repaid.  The major P2P companies all have different mechanisms to enable lenders to do this, and these are detailed on the P2P company attributes as "Automated Lending".  As funds are repaid by the borrower, the lender will need to relend in order to receive the headline interest rate.  If a lender chooses to leave these funds in their holding account they will, of course, only receive interest on the funds actually on loan.

Most P2P loans work in the similar to a regular savings account (but actually in reverse as at the start you have all of your money and at the end you have none).  With a regular savings account you typically lend a fixed amount of money per month.  Lets say, for example, we choose to save £100 in a regular savings account at 5%.  At the end of the year we will have £1,200, but we won't be paid £60 interest (£1,200 @ 5%) as we have not had the full amount on loan for the full year.

While rates have dropped recently, the rates are still in excess of what savers can achieve in classical savings accounts, and while P2P loans do carry additional risk, these are still a good investment, and a fantastic choice for borrowers.

RateSetter and Zopa win Moneywise awards

June 15th, 2013

RateSetter and Zopa were winners in the Moneywise customer service awards.  RateSetter won the overall award for Most Trusted Specialist, and Zopa continued their previous success by winning the Most Trusted Loan Provider for the 4th year in a row.

The fact that these two peer-to-peer companies are taking on the banks and building societies - and winning - is a testament to how far P2P lending has come.  The industry should take note that finance in the UK is changing for the better.

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