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Funding Circle change minimum lending rates
Funding Circle have made some amendments to their minimum lending rates. The P2P money blog reported last week that the minimum lending rates had been increased from 4% to between 6% (for A+ borrowers) and 10.5% (for C borrowers). Following 64 pages of comments on the Funding Circle forum, these have been amended to between 6% (for A+ borrowers) and 9% (for C borrowers). In addition they have stated that future changes will have 2 weeks notice.
A skeptical lender could say that Funding Circle have done a U-turn, but it would be fairer to state that they have listened to feedback and made changes. It was 12 months ago when lenders threatened strike action after a rate change on another P2P company, and a year later after failing to reverse their decision lending was down 90%.
Last week we introduced a trial of new minimum bid rates by risk band. Prior to this change the minimum interest rate you could bid on a loan auction was 4% across all risk bands. This was increased on 24 June 2013 and you can read our blog post announcing this initial change here.
When deciding to increase the minimum bid rate, we take into consideration a range of factors. These include the cost of alternative borrowing products, the returns available on other investment products, the general economic conditions, protecting investors from bidding rates significantly below the average and the estimated bad debt rates for each risk band.
Since announcing the start of this trial, we have received valuable feedback from investors on the forum, and also through a survey sent out on Friday, which you can see the results of here. Regular feedback from investors and borrowers is crucial to the success of Funding Circle and we’d like to thank everyone who has taken part so far.
Following the feedback we will be adjusting the trial minimum bid rates to the following levels:
A+ risk band: 6.0%
A risk band: 7.0%
B risk band: 8.0%
C risk band: 9.0%
Going forward we are committed to reviewing minimum bid rates on a monthly basis and providing two weeks’ notice of any future changes. This will ensure investors are aware in advance of any changes and there is minimal impact on market behaviour or an individual’s investment experience. Additionally, any future adjustments will be introduced incrementally at a maximum of 0.5% (+ or -) of the existing minimum bid rates across each risk band.
Samir, our CEO, and other team members will be discussing the minimum bid rate trial on the forum, and the rationale behind the decisions we took. If you have specific questions or would like to discuss this in more detail, please post a question and we will be happy to answer.