Practical Peer to Peer lending Advice
In my previous post I gave tips on how to try PtPL with minimum risk. I covered platforms such as Ratesetter (RS) and Funding Circle (FC). In this post I shall look at Asset-based Lending on platforms such as Saving Stream (SS), Money Thing (MT) and Funding Secure (FS). These offer far higher rates of interest with some (manageable) risk as well as making it relatively easy to get your capital back quickly via a Secondary Market.
These 3 asset-based PtPL sites reduce risk by securing each loan against a tangible asset such as property, art works, land, cars, planes or industrial machinery. In the event of a default, the asset can be sold by the platform and the proceeds used to pay back the lenders. The main risks are therefore platform failure or the asset valuation being too low.
These sites typically offer shorter loan terms than sites like Ratesetter. Ratesetter’s best rate is over a term of 5 years and pays typically 5-6%.
Saving Stream pays 12% for a bridging loan of typically 12 months. In practice these loans may be redeemed earlier or continue for longer depending on progress of the development work required before the land or property is sold.
In the current market, you can immediately sell loans without loss on the Saving Stream secondary market. It is also worth noting that SS, MT and FS don’t charge any fees to lenders for buying or selling loans.
While Saving Stream originally lent against boats, they now specialise in property and land. Money Thing and Funding Secure offer a wider range of assets including cars and artworks. More specialised sites, such as Ablrate, lend against aircraft, industrial plant and shipping containers with rates from around 10-14%.
It is obviously wise to spread your money across loans, asset types and platforms. This minimises the risk of asset value collapse, platform failure or individual loan defaults.
Secondary markets are a useful means of further diversification for your existing loans and a channel to reinvest returned interest and capital on shorter term loans.
If you work full time then be aware that sites like Zopa and Ratesetter are relatively ‘hands off’ while the asset-based sites require more ‘hands on’ management. You may also wish to look at the details of the individual asset-based loans, for example valuation reports, to make sure you are comfortable with the stated purpose of the loan.
So, finally, do give PtPL a shot. Start with small amounts across several platforms and see how you get on. But remember, don’t ever invest more than you can afford to lose. Having said that, I think that you’ll find that PtPL is much less of a lottery than the stock market!