P2P Lending still niche but growing - analysis of main players
Found the following analysis of the main players in P2P lending - also wondered, can this ever be more than niche?
Launched March 2005
Amount lent to date: More than £278m
Default rate 0.5pc
Average savings rate 5.4pc (after charges and defaults)
Average loan rate 6.7pc (on £5,000 loan)
Fee paid by savers 1pc of the amount lent
Fee paid by borrowers Up to £190 per loan, included in advertised APR
Zopa was the first peer-to-peer lender to launch in Britain and remains the largest. One of the keys to its success has been the low default rate, achieved through strict screening of potential borrowers: it said more than 75pc of borrowers who apply for credit are turned away.
If you want to borrow money, not only will your credit file be checked, but also affordability factors.
In each category, a range of rates is displayed and the saver then sets the return they want to earn on their money. If they go lower than the suggested range, their money will be snapped up instantly; if they go higher, they may struggle to attract borrowers. They can, of course, diversify further by spreading their money between different lending groups.
Launched October 2010
Amount lent to date: £58m
Default rate 0.35pc
Average savings rate 5pc (after all fees)
Average loan rate 7.6pc (on £5,000 loan)
Fee paid by savers 10pc of interest received (all interest rates shown after fees)
Fee paid by borrowers From £80, depend on term and size of loan
With Ratesetter those putting up money don’t have to choose who they want to lend money to. Rhydian Lewis, the founder of the site, said: “We’ve found many customers find it difficult to judge the relative merits of lending to an A* borrower at 5pc or an A borrower at 6pc.” Instead savers are given one interest rate – set by the market on the site on any given day. The only variable is how long your money is tied up for (the longer the period, the higher the rate). Ratesetter also offers short-term products, paying 2.5pc if customers lock funds away for just a month and a rate of 3.2pc on a one year bond.
The key difference is the “provision fund” to cover bad debts. This is paid for by the borrowers, via an additional rate charge, with higher-risk borrowers making a higher contribution to this fund. This fund isn’t guaranteed to cover all defaults in full. But as it stands now at £838,000 bad debts would need to increase 11-fold before savers are affected. To date all saver have received back every penny lent, with interest paid in full.
Launched August 2010
Amount lent to date £81m
Default rate 1.5pc
Average savings rate 5.7pc (after charges and defaults)
Average loan rate 8.8pc (on £5,000 loan)
Fee paid by savers 1pc annual fee
Fee paid by borrowers 2pc to 5pc depending on loan type
The twist here is that money is lent to small businesses, rather than individuals. James Meekings, the co?founder, said they were aiming at low-risk businesses struggling to get finance from the banks at affordable rates.
All firms are screened and the company will not accept either start-ups or sole traders.
While firms are required to have a minimum of two years’ audited accounts, Mr Meekings said many will have far longer trading records, on average 15 years, and a significant proportion is lent to companies in manufacturing.
However, he stresses that lending money to businesses is not without risk and this is reflected in the returns paid. The maximum interest that can be earned is 15pc, though the average is nearer half this.
Mr Meekings said a fairer comparison was the returns made from corporate bonds. Savers can access their money at any point, by selling their loans on to other lenders, but there is a 0.25pc charge for doing this.