The Money Mustache Community
Around the World => Australia Discussion => Topic started by: marty998 on September 06, 2018, 05:35:40 AM
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For better or worse I have discovered Ratesetter. A friend said they were going to give it a go so me being the person I am researched the hell out of it over an evening on the weekend (including cynical Reddit discussions, Product Reviews and a 500 post Whirlpool thread).
Having read through the disasters befalling our American comrades on Lending Club, I was heartened to discover the following differences which makes Ratesetter more appealing:
1) The provision fund - no lender has ever lost a $ of capital
2) That Ratesetter does a proper, thorough credit check, complying with responsible lending laws.
3) That some of the loans are secured where possible.
4) That the borrower pays all fees, charges, costs and Ratesetter's interest margin. As a lender you get the return you choose - the interest rate you decide to lend at. No deductions.
5) Centrelink as your main source of income will disqualify you. The average borrower is 42 years old earning $83,000 per year.
6) You can download the entire loan book and analyse it yourself! As a data nerd I love this.
I am dripping my tax refund and upcoming work bonus in over the next couple of months, figure 1-2% of my net worth is ok to use for starters.
Some self imposed rules:
1) That I would like to achieve a return of 3% above my mortgage offset account (i.e. 4.5% + 3%, soon to be a little more with recent rate rises).
2) At the first sign of trouble / increasing default rates and when the provision fund starts getting depleted I'll set it to auto withdraw. We haven't seen how Ratesetter Australia performs in a recession, so that will be the main concern.
For now, it is providing a useful distraction for me from Facebook and Commsec - the past couple of days have not been nice on the markets and I'm kinda glad I've found something to take my attention away from that crap social media rubbish.
Anyway, so far I have 6 x $250 loans at an average rate of 8.3%. I am ok with that, putting in $500 a day for the foreseeable future.
Anyone else had a crack at it? Keen to hear some experiences.
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Hi Marty,
I've had a crack at it both as a borrower first and then as a lender.
From the borrower's perspective I found the whole process straightforward and I'm not sure why it is not more popular as the rates for my situation were much better than the traditional options.
As a lender I initially dabbled with the 1 month investment option but quickly found that there was too much time where the funds were sitting idle (time to match to a borrower, time for loan creation, time for funds to become available at the end of the period). When you take into account of all these delays it must have an impact on the effective interest rate your money is earning.
We got a bit more serious and tried 10K with the 3 year loan option. However, early repayments are still a pain for lenders, we locked into a 3 year commitment but the borrower can repay it at any time (great for them). An early repayment means that you suddenly get part of your capital back and you have to have a plan on how to reinvest those funds again. This resulted in us ending up with lots of little loans, each with their own interest rates, repayment dates, interest payment dates and timelines. Even with the auto reinvestment settings (unless maybe you use the market rate option) it was still more work than we expected.
One thing that was never clear to me and always bugged me is the interest rates that the borrowers receive. Assuming borrowers are receiving different rates to each other based on their circumstances, then this is not visible to lenders and there is no way to take advantage of it on the lending platform. The way I saw it is that you had to invest at or only just above the market rate so your funds got matched to a borrower. This has resulted in an "a race to the bottom" for the rates of who is willing to accept the lowest rate of return so their money is matched first.
Other things to note; we haven't had an issue with defaults or late repayments on our loans so haven't tested the provision fund.
Conclusion: In the end we have chosen to move away from Ratesetter and will be reinvesting the funds with our other ETF & LIC investments as they become available.
This is just my experience as a user of the system, the normal disclaimers regarding these being my own opinions and that your experience may differ apply!
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Yeah good points. I'm not going anywhere near the one month loans - these don't make sense for me, and I presume they only make sense for people whose opportunity cost is a term deposit rate. Also yeah a 3 day lag in funds in and out will knock 10% off your return.
Borrowers pay an interest rate 10% more than the rate their loan has been matched at. (RS takes that 10%). So if a loan has been matched at a rate of 7.9, 8 and 8.1% for example, the borrower will be paying 8.8% plus fees, and the lenders get the rate they've agreed to (7.9, 8 and 8.1%).
I accept it is a race to the bottom, and the market rate will tend towards whoever has the lowest opportunity cost. However in the week I've been on it, I've noticed that there is some sense and offers are not chasing the bids down. Good to see that lenders seem to be being sensible about it.
In analysing the loan book it was interesting to see that no "Green" Loan has ever defaulted... the quality of borrowers taking out these type of loans appears to be much higher, though the interest rate is lower. In some respects the market for those loans is a little rigged, because (Kevin Rudd's - remember him?) Clean Energy Finance Corporation is funding $20m on the platform, and they seem prepared to accept 6.4%...
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I've had $10k in there, in both 3 and 5 year terms. I've had no issues with them. Now down to $2k due to early principal repayments.
That said, I am not investing anything with them and have given up on them as a platform. With those long-term loans, there's just no way to get the money back out if you need it and that doesn't sit well with me.
That said, if Shorten gets his franking credit policy into law, I'll be needing a source of unfranked income, so who knows...
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I've had $10k in there, in both 3 and 5 year terms. I've had no issues with them. Now down to $2k due to early principal repayments.
That said, I am not investing anything with them and have given up on them as a platform. With those long-term loans, there's just no way to get the money back out if you need it and that doesn't sit well with me.
That said, if Shorten gets his franking credit policy into law, I'll be needing a source of unfranked income, so who knows...
haha - yes I see how this could be a benefit to take advantage of franking credit rule changes in future.
I'm not too concerned about the 5 year lock up... as you say, a significant proportion get prepaid so money tends to come back faster than expected.
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We have a lot more than 1-2% of our net worth in there, and have been using the platform for at least 4 years.
We love it! The ability to automate everything from re-investing to auto-withdrawals puts it on top of the other Aussie P2P platforms in my opinion. The returns (still averaging 8-9%) are the reason we have so much of our net worth in there, and the fact that we already have considerable real estate investments, and think the stock markets are a bit risky at this point in the cycle.
The early repayments (average for us has been 10-20% of the total for the 3-5 year loans paid back early each year) are a positive for me, although they do add a bit of a time commitment to reinvest the large chunks exactly how you want them. The reason I don't mind the early repayments, along with the fact that all payments on the longer loans are paid back P&I (not interest only), is that it provides a lot of liquidity and flexibility over the life of the loan.
You have quite a lot of money coming out each month in P&I payments and early repayments, so in the event of a stock market crash or a decision to move the money elsewhere, you can immediately set everything to auto-withdraw each week, and not re-invest anything. Each month you'll be getting a significant sum and over the first year or two close to half your investments could be out to do what you want with.
Also they're extremely reliable as a platform. In almost 5 years we have not had a single issue that we needed to contact them about, despite thousands of loans matched, and hundreds of deposits/withdrawals over that period.
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That nice to hear. I haven't been on long enough to get one repayment yet though :)
Up to $7,500 on the platform now, a mix of 3 & 5 year at an average of 8.6%. Seems like the volume is definitely picking up as compared to 3 and 6 months ago. I would assume a lot of this is due to credit becoming much less freely available form the Banks.
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I've been a lender on rate setter for about three years now. Everything is set to auto reinvest so I have a ridiculous long list of little loans but I don't intend to withdraw anything anytime soon, but if I had to I would just change my settings as mentioned above.
All I do is track the total interest received each month and it works out to be 8-9% per annum so I'm happy to keep some of my cash parked there.
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We have a large sum invested with Ratesetter which works out to be about 10% of our NW. I really love it.
Auto-reinvesting the income does lead to lots of small loans as other people have said but I just log in and check there's no money sitting around where it shouldn't be every couple of weeks. Eg if something weird happens one day, I can have money put out to lend at 9.5% but then the market rate drops so it sits there not getting matched. It's easier to cancel and put it back out at 9.0%.
Once you've been on there a bit you see that the long term rate for 5 years is 9%. Generally it only drops when a newbie joins and lends a bunch of money below that. My account is set to reinvest at 9% instead of the market rate - I'd rather wait a few days than have money locked up for 5yrs at 8.5%. The way it works is that it will be reinvested at a minimum of 9% so I've got a few small loans at well over that!
ETA: The majority of our loans our for 5yrs but we have a few 3yrs and one 1 year left I think - we are in it for retirement income so once we click the switch we'll be collecting the income not reinvesting and want to max it. If we need funds that's what Vanguard is for.
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Marty, I assume you’ve fully offset your Ppor mortgage and are talking about the offset on IPs to be considering this?
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Marty, I assume you’ve fully offset your Ppor mortgage and are talking about the offset on IPs to be considering this?
Yes. It really wouldn't work otherwise.
I'm basically going to be clearing $250 profit after tax and risk-free opportunity cost for $10,000 invested so it's more of a "lets learn about how this shit works" investment more than anything else.
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The repayments are trickling in now....about $12 a day.
I don't know if I should jump for joy, but I just made a 5 year loan of $12.81 at an interest rate of 14.4% :)
Sometimes the offer stack just gets cleared and lenders go to sleep with not putting enough supply there to match demand.
The opportunity is there for the sniper who is prepared to wait and nab a very good price.
Of course, if a borrower is willing to pay that rate (+ fees & charges) then you have to wonder what they are refinancing from or what they desperately need the funds for...
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The rates on the five year loans have gone crazy. They have been high since September but my last pot of income got re-invested at 10.1% and the bulk of the lending orders are at over 11%! I'm not sure what's going on as the monthly rates and 3yr rates seem stable.
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It's the result of the credit squeeze caused by the banks restricting their lending caused by the Royal Commission
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Assuming all the loan repayments count as taxable income (minus the principal)?
Does Rate-setter give a neat tax form at the end of financial year, or has this been a bit of work for those using the platform?
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Assuming all the loan repayments count as taxable income (minus the principal)?
Does Rate-setter give a neat tax form at the end of financial year, or has this been a bit of work for those using the platform?
Yep you get a statement. Mine's not available yet this year tho. It has income and expenses for the tax return.
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It's the result of the credit squeeze caused by the banks restricting their lending caused by the Royal Commission
Does Ratesetter now have to offer people higher rates because of the squeeze - eg someone that previously qualified for 9% loans has to have an 11% loan? As well as new customers coming over because they've been declined by banks. And why would the one month and 3 yr markets remain the same - do banks not normally loan for such short periods. Idk I've never had a personal loan, don't actually know how it works.
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I know nothing about Ratesetter's behaviour to borrowers, so I'm just guessing.
The rate that the borrowers get is driven by supply and demand, like any properly functioning market. They can get a 9% loan if someone is offering one (ignoring Ratesetter's margin) but lenders are getting deals at 11% so that's where the market rate sits for now.
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It's the result of the credit squeeze caused by the banks restricting their lending caused by the Royal Commission
Does Ratesetter now have to offer people higher rates because of the squeeze - eg someone that previously qualified for 9% loans has to have an 11% loan? As well as new customers coming over because they've been declined by banks. And why would the one month and 3 yr markets remain the same - do banks not normally loan for such short periods. Idk I've never had a personal loan, don't actually know how it works.
Nope - I think it is simply demand exceeding supply at the particular point in time. Good for lenders, not as great for borrowers.
If a lender offers a loan at 10%, ratesetter adds another 1% as their margin. The borrower then pays back their loan at 11% + fees + an additional payment to the provision fund.
If the rate goes any higher it might be better for borrowers to simply stick with credit cards.
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Yes that's right! Yet you got that 14% loan a while ago and it regularly leaps up that way on a Friday night. There doesn't seem to be as much money being lent at the moment either. Well, whatever's going on, I'm pretty happy.
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Oh I wish it was for more than $12 though haha!
I got sent an invite to a drinks night they are hosting for lenders later the month. Did you get one too @Fresh Bread? Might see you there if you are going along!
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Oh I wish it was for more than $12 though haha!
I got sent an invite to a drinks night they are hosting for lenders later the month. Did you get one too @Fresh Bread? Might see you there if you are going along!
I wasn't going to go because I don't like awkward small talk. Hubby was keen tho & he works in the city.
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Oh I wish it was for more than $12 though haha!
I got sent an invite to a drinks night they are hosting for lenders later the month. Did you get one too @Fresh Bread? Might see you there if you are going along!
I wasn't going to go because I don't like awkward small talk. Hubby was keen tho & he works in the city.
I don't like awkward small talk either. I do, however, like free beer and wine....
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Oh I wish it was for more than $12 though haha!
I got sent an invite to a drinks night they are hosting for lenders later the month. Did you get one too @Fresh Bread? Might see you there if you are going along!
I wasn't going to go because I don't like awkward small talk. Hubby was keen tho & he works in the city.
I don't like awkward small talk either. I do, however, like free beer and wine....
I just got a follow up email and it says you can bring a guest. So definitely no need to talk to strangers and they give you free drink and nibbles. I still think I'm unlikely though as I work til 7.15 on a Thursday and not in the city.
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Went along today and had a chat with a couple of staff members, including the head of credit risks, a couple of the marketing reps, and the CEO Daniel Foggo.
They are genuinely passionate about the business and want to see it grow, and even cheekily suggested a recession would be good, because black marks showing up on credit files will assist them in screening and knocking back borrowers applications!
Ratesetter itself is forecast to become profitable soon, but the have just done another round of fundraising with existing shareholders and a couple of new ones, in order to pay the bills for another year. Good to know they are running the business in a manner that they expect to be here long time into the future.
They believe (5-yr) rates are quite high in comparison to the UK market, and they foresee rates falling when the liquidity facility is introduced soon.
A nice evening all round.
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The rates on the 3 year loans seem to have collapsed.
I didn't think removing the one year loans would do that, but those lenders have all found a home in the 3 yr bucket, and are willing to accept a much lower rate.
Good for borrowers, not great for lenders... looks like all my loans will be 5 yr for the foreseeable future.
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So now the rates on 5 year loans seem to have hit new lows (8%). Anyone any ideas why? I've got money waiting over a month to reinvest. I might withdraw the interest and put it in Vanguard until it picks up.
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I've been keeping an eye on their stats and the lending volume went on a steady decline since beginning of November. Before they were routinely lending between 3.7 and 4.5 mil per week, now it's about 2.5m. Add to that the early withdrawal feature that went live not too long ago could have enticed lenders to throw in more money. So it does appear to be a supply and demand related.
Another thing of note is the provision fund balance. In the last two months it decreased from 11.8 mil to 11.2m. And that's with all the lending in the background that's supposed to contribute to the provisioning balance. With that I concluded that the margin of safety has decreased beyond my comfort level and started withdrawals.
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So now the rates on 5 year loans seem to have hit new lows (8%). Anyone any ideas why? I've got money waiting over a month to reinvest. I might withdraw the interest and put it in Vanguard until it picks up.
I've been keeping an eye on their stats and the lending volume went on a steady decline since beginning of November. Before they were routinely lending between 3.7 and 4.5 mil per week, now it's about 2.5m. Add to that the early withdrawal feature that went live not too long ago could have enticed lenders to throw in more money. So it does appear to be a supply and demand related.
Another thing of note is the provision fund balance. In the last two months it decreased from 11.8 mil to 11.2m. And that's with all the lending in the background that's supposed to contribute to the provisioning balance. With that I concluded that the margin of safety has decreased beyond my comfort level and started withdrawals.
Yeah I've noticed these points too. Volumes are down to what they were in late 2017. Not enough borrowers and the # of lenders has increased by 12% since September. Holding account balances are up substantially too.
Ride it out - I'm hoping a few more lenders like yourself @nofriends start to pull money out - might make it better for those remaining :)
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I checked the website and the provision fund is $12.5m.
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12.5m** on the public website (note there's no reference of what those ** relate to);
11.3m on members site if you go to ratesetter data tab and select provision fund details on the left.
marty998 - doing my best for you, currently have almost 30% allocated to ratesetter, need to get it down to 10% max, the way it's going will probably take me 12-24 months to get there.
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30% is quite a lot! We've got 10% in there. I've withdrawn the amount that was sitting around and set it to only reinvest capital and spit out the rest going forward. I'll see how we go with rates and if they don't improve I may as well withdraw the capital too.
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30 and even 10 would be far too much for me! I've still only got <1% on there.
Damn thing has performed better than the stockmarket over the period I've been in. Hard to want to withdraw in those circumstances!
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It used to be nearly 50, talk about risk management... But hey, there is progress! It just takes an awful lot of time with them when one is not keen on partying with 3 percent of capital for an early withdrawal.
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Whoa, so the lending market rates have fallen off a cliff the past month. My self imposed minimum returns from the 3 and 5 year markets are no longer being filled, so it’s time to pull the holding account money out.
I’ve done ok, I’ve still got an average rate for the year of about 8.5%, and will continue to get that over the next four and a half years as the loans roll off. But it’s time to pull the plug for now.
Overall I am satisfied with the results and the platform. But it just doesn’t meet my investment criteria anymore.
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I'm with you marty, the risk-reward proposition with current rates just isn't there. The only exception I think is the 1-month market when rates are above 3pct. My theory is it would be less exposed to a rise in non-performing loans, so less chance of loss of capital. Whether the risk premium over say ubank is worth it is another question though.
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I'm with you marty, the risk-reward proposition with current rates just isn't there. The only exception I think is the 1-month market when rates are above 3pct. My theory is it would be less exposed to a rise in non-performing loans, so less chance of loss of capital. Whether the risk premium over say ubank is worth it is another question though.
One month loans can roll over up to 2 years though and I think you can only ask for early exit from longer loans.
I'm not feeling much risk so I'm withdrawing interest but leaving the capital in and loaning it back out on the green loans. Then the lower rate doesn't bother me as I'm thinking about the public good not maximising returns.
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Here's an update on the provision fund:
Money in Provision Fund^ $10,082,525
The downtrend is significant:
Nov 2018 11.8 mil
Jan 2019 11.3
Mar 2019 10.8
Apr 2019 10.5
Food for thought.
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PTF
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Here's an update on the provision fund:
Money in Provision Fund^ $10,082,525
The downtrend is significant:
Nov 2018 11.8 mil
Jan 2019 11.3
Mar 2019 10.8
Apr 2019 10.5
Food for thought.
I noticed that too.... and they expect the future bad debt within the current loan book to be ~$8 million.
It's not looking great, especially with volumes falling as well. Wonder if it's a lack of borrowers applying, or having to comply with stricter lending verification rules...
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Following.
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I've been using ratesetter for about 3.5 years without issue. Does anyone know what the difference between the two clean energy options are? There is about a 2% difference in their rates atm.
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I've been using ratesetter for about 3.5 years without issue. Does anyone know what the difference between the two clean energy options are? There is about a 2% difference in their rates atm.
One is just South Australia specific (for borrowers). The loans written in those markets are not really peer to peer.
The Clean Energy Finance Corporation is responsible for these markets - Remember Kevin's Rudd's idea for a Green Bank? It's still going, and still making money for the taxpayer. It borrows at the government bond rate and lends it out for initiatives like this, including Ratesetter loans.
The Liberals made a huge song and dance about it saying it was socialism and a giant waste of money and what not, but they have been very quietly happy to keep it going because it is a nice little earner.
The CEFC is lending $20 million through the National Clean Energy Option, and up to $100 million into the South Australia Option. Because they are huge, they are basically setting the price at 6.5% and 5% and everyone else has to work around it. Unfortunately I don't know exactly why the rates are different (probably something to do with the the rate the CEFC has borrowed its money at). Quick google research isn't turning up much :)
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That provision fund is still dropping. Down under $10m now and the estimated bad debt is up over $9m.
The interest rates in the 3yr market have also collapsed and are now at 3.1%! (LOL at the inverted yield curve between 1 & 3 year loans).
Most of my 3yr loans were written at 7.8% a year ago.
Something isn’t right.
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I've had over $11,000 in Ratesetter in the past, although it's now down to 7 hundred and something, as I stopped renewing loans a couple of years ago. I decided that I wasn't happy that Ratesetter would not struggle during the next crash/recession.
On the back of your keeping tabs on it, Marty, I have used the new early transfer feature tonight and pulled that 7 hundred and something out.
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I've had over $11,000 in Ratesetter in the past, although it's now down to 7 hundred and something, as I stopped renewing loans a couple of years ago. I decided that I wasn't happy that Ratesetter would not struggle during the next crash/recession.
On the back of your keeping tabs on it, Marty, I have used the new early transfer feature tonight and pulled that 7 hundred and something out.
I have $9000 still on the platform. I figure any loans I wrote 6-12 months ago if they were to go bad they would have gone bad by now (and been paid out by the provision fund).
So I'm happy to see them continue earn interest and let them run-off.
Occasionally a loan will be paid out early which probably isn't a bad thing now too.
I just cannot understand who are the lenders out there accepting 3.1% for 3 year unsecured lending. 3% p.a. for 1 month short term, fine (especially since each month you get paid back via being refinanced by other lenders mostly). But the 3 year market seems ridiculous.
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They also released a new PDS recently that I've not had time to read - is there anything new in it?
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From Ratesetter:
In November 2018, RateSetter shifted from charging borrowers an upfront risk fee (Risk Assurance Charge) to a risk fee that is captured over the lifetime of a borrower’s loan (Risk Assurance Rate). Because of this change, the Provision Fund buffer is now made up of cash held in the Provision Fund as well as future cash inflows that are due from borrowers over the lifetime of their loans, see image below.
While the current Provision fund cash balance may appear to be decreasing as a member of Financial Independence Retire Early rightly pointed out, the 'Expected Provision Fund inflows' is growing (currently ~$4.8m). A good way of measuring the Provision Fund's overall ability to meet future borrower missed payments is to look at the 'Provision Fund buffer' or alternatively the ‘Current estimated default coverage ratio’ both of which have remained steady over the last year.
The Provision Fund typically protects investors when the Current estimated default coverage ratio is greater than 1x. Given that the Current estimated default coverage is above 1.5x, we expect the Provision Fund to maintain its unblemished record of protecting investors against borrower late payments or defaults.
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From Ratesetter:
In November 2018, RateSetter shifted from charging borrowers an upfront risk fee (Risk Assurance Charge) to a risk fee that is captured over the lifetime of a borrower’s loan (Risk Assurance Rate). Because of this change, the Provision Fund buffer is now made up of cash held in the Provision Fund as well as future cash inflows that are due from borrowers over the lifetime of their loans, see image below.
While the current Provision fund cash balance may appear to be decreasing as a member of Financial Independence Retire Early rightly pointed out, the 'Expected Provision Fund inflows' is growing (currently ~$4.8m). A good way of measuring the Provision Fund's overall ability to meet future borrower missed payments is to look at the 'Provision Fund buffer' or alternatively the ‘Current estimated default coverage ratio’ both of which have remained steady over the last year.
The Provision Fund typically protects investors when the Current estimated default coverage ratio is greater than 1x. Given that the Current estimated default coverage is above 1.5x, we expect the Provision Fund to maintain its unblemished record of protecting investors against borrower late payments or defaults.
That Risk Assurance Rate is of no use if the borrower defaults before they have paid their future risk fee into the provision fund.
I can understand why they have done it - it spreads the impact for the borrower, a bit like Lenders Mortgage Insurance. But geez it does not actually fill me with more confidence.
You would think interest rates charged by lenders should rise because of that, not fall.
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I agree, it's perfectly reasonable while business conditions are ok.
But if the economy goes tits-up: bad debts skyrocket and the expected inflows plunge. Suddenly, the converage ratio is well < 1.
Pass.
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From Ratesetter:
In November 2018, RateSetter shifted from charging borrowers an upfront risk fee (Risk Assurance Charge) to a risk fee that is captured over the lifetime of a borrower’s loan (Risk Assurance Rate). Because of this change, the Provision Fund buffer is now made up of cash held in the Provision Fund as well as future cash inflows that are due from borrowers over the lifetime of their loans, see image below.
While the current Provision fund cash balance may appear to be decreasing as a member of Financial Independence Retire Early rightly pointed out, the 'Expected Provision Fund inflows' is growing (currently ~$4.8m). A good way of measuring the Provision Fund's overall ability to meet future borrower missed payments is to look at the 'Provision Fund buffer' or alternatively the ‘Current estimated default coverage ratio’ both of which have remained steady over the last year.
The Provision Fund typically protects investors when the Current estimated default coverage ratio is greater than 1x. Given that the Current estimated default coverage is above 1.5x, we expect the Provision Fund to maintain its unblemished record of protecting investors against borrower late payments or defaults.
So ratesetter is charging an extra fee, but is that going to be passed on lenders?
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They said that it has changed from an up-front fee to a rate throughout the life of the loan.
Although light on detail, it's not described as an extra fee, merely a change as to how they fund the provision fund.
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From Ratesetter:
In November 2018, RateSetter shifted from charging borrowers an upfront risk fee (Risk Assurance Charge) to a risk fee that is captured over the lifetime of a borrower’s loan (Risk Assurance Rate). Because of this change, the Provision Fund buffer is now made up of cash held in the Provision Fund as well as future cash inflows that are due from borrowers over the lifetime of their loans, see image below.
While the current Provision fund cash balance may appear to be decreasing as a member of Financial Independence Retire Early rightly pointed out, the 'Expected Provision Fund inflows' is growing (currently ~$4.8m). A good way of measuring the Provision Fund's overall ability to meet future borrower missed payments is to look at the 'Provision Fund buffer' or alternatively the ‘Current estimated default coverage ratio’ both of which have remained steady over the last year.
The Provision Fund typically protects investors when the Current estimated default coverage ratio is greater than 1x. Given that the Current estimated default coverage is above 1.5x, we expect the Provision Fund to maintain its unblemished record of protecting investors against borrower late payments or defaults.
So ratesetter is charging an extra fee, but is that going to be passed on lenders?
Not that I have ever been a borrower but I understand borrowers pay a much higher rate than what the lender selects, but the lender only ever gets the specified rate they want.
For example, The lender might charge 5%. Then 0.5% is added for Ratesetter's interest margin, then a couple of % is added for funding the provision fund, then you have fees and charges added on top. The final all in "rate" might be well north of 10-13% depending on the amount you borrow, but the lender only gets the 5%.
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From another forum (not by me):
" I wanted to borrow $10k a few years back and they wanted to charge me $1300 even though I had no debt and have a combined income of $150k. Doing the calculations, the low interest rate of 9%, compared to banks which were offering 13%, quickly became about 20% after accounting for the fee. I declined. They either gouge customers who don't pay attention to all costs involved, or they lose them for stupidly high fees. Not a great model for a society waking up to their finances. "
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Amazing that the 3yr rate is down at 2.7% and the one month rate at 3.8% today.
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2.7%??!?!?!
I had another early payout today.
Is there much data about P2P lending and the general health of the economy?
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2.7%??!?!?!
I had another early payout today.
Is there much data about P2P lending and the general health of the economy?
Crazy isn't it? 2.7% for 3 years for what are largely unsecured personal loans that banks charge 9-11% for. Ask yourself why banks need to charge that much, and still do even in the face of competition from Ratesetter.
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2.7%??!?!?!
I had another early payout today.
Is there much data about P2P lending and the general health of the economy?
Crazy isn't it? 2.7% for 3 years for what are largely unsecured personal loans that banks charge 9-11% for. Ask yourself why banks need to charge that much, and still do even in the face of competition from Ratesetter.
Wow. That's so true. What's the health of the company like? I've not been keeping up with all of the information they send me (I've got young kids, I don't have a lot of time to sit and think). I should probably sit down and see what's in their new pds and investor letter.
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2.7%??!?!?!
I had another early payout today.
Is there much data about P2P lending and the general health of the economy?
Crazy isn't it? 2.7% for 3 years for what are largely unsecured personal loans that banks charge 9-11% for. Ask yourself why banks need to charge that much, and still do even in the face of competition from Ratesetter.
Wow. That's so true. What's the health of the company like? I've not been keeping up with all of the information they send me (I've got young kids, I don't have a lot of time to sit and think). I should probably sit down and see what's in their new pds and investor letter.
Ratesetter is backed by a number of venture capitalists. From time to time they'll inject more capital (I don't think it the Company itself is profitable just yet).
I was more hinting at the stupidity of lenders (i.e. Joe Public) willing to lend at such low rates.
Regarding how it performs in a downturn.... I'm guessing it won't be great but there isn't a track record in this country to go by.
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I don't have a lot of money in it, it's really just some money to see how it goes over the long term. I just looked at the 3 year rates and orders, and it's strange - there are 1236 orders at 2.7% totalling $176k, and the rest have an even spread (between 1 and 400 orders at other rates). It's such an outlier, I wonder whether there is something going on, or whether it's coincidence.
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I don't have a lot of money in it, it's really just some money to see how it goes over the long term. I just looked at the 3 year rates and orders, and it's strange - there are 1236 orders at 2.7% totalling $176k, and the rest have an even spread (between 1 and 400 orders at other rates). It's such an outlier, I wonder whether there is something going on, or whether it's coincidence.
The's an option you can select to "automatically reinvest" any money in your holding account. It places that at the lowest rate, hence the large number of small offers. Lots of people are obviously not thinking about it too hard....
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Anyone going to one of ratesetter's events this month? As much as I'd love the opportunity, it doesn't fit in my schedule this year, which is a real shame, but hoping someone else could go ask uncomfortable questions and report back.
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I think anything that is open to the public to bid (e.g. Uber, Airtasker, this) is just going to turn into a race to the bottom very quickly. I think you'd be better off investing in bank shares than accepting low rates for unsecured debts.
Perhaps if lenders (individuals) were smart enough to form a loose cartel and keep rates high that would be okay, but it seems a lot of people are providing ultra-competitive rates which then defeats the purpose.
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I think anything that is open to the public to bid (e.g. Uber, Airtasker, this) is just going to turn into a race to the bottom very quickly. I think you'd be better off investing in bank shares than accepting low rates for unsecured debts.
Perhaps if lenders (individuals) were smart enough to form a loose cartel and keep rates high that would be okay, but it seems a lot of people are providing ultra-competitive rates which then defeats the purpose.
You're absolutely right.
Everyone has a different required rate of return. My lower limit I'm willing to accept is now 4% above my offset account rate of return (which is around 8%). An SMSF investor whose alternative is bank interest at 1.25% may be willing to accept 3%. They will get their loans funded and I won't.
It's a variation of the prisoners dilemma type situation. All lenders win by a larger degree if they do not act entirely selfishly.
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National Clean Energy fund is up to 8.7%... what's going on?
Does anyone know more about this?
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Clean energy finance corp must have run out of money, lol. I've chucked some in at 15.9% yesterday, couldn't resist. Hoping it stays on loan longer than a few days.
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Clean energy finance corp must have run out of money, lol. I've chucked some in at 15.9% yesterday, couldn't resist. Hoping it stays on loan longer than a few days.
I had that thought - there seems to be an increasing uptake of large scale renewable projects recently. I was just surprised that it shot up so much! I've had money waiting to be loaned in the low 6% for weeks, then it all went yesterday in a short space of time. I wonder if it is a short burst of volatility... will have to wait and see!
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Maybe the worker bee at the CEFC went on holiday and forgot to leave a couple of million on offer while they were away....
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Managed to write a $28 loan in the 1 month market @ 20% interest LOL. Just wish I had more in my holding account haha.
Entire supply stack was taken out in the daily refinancing this morning and there was still $180k in need of lenders to replace the previous months loans that had matured. A few lenders who snapped that up got very lucky indeed.
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So I got two offers in my inbox today from Ratesetter, I feel like they are quite desperate for investors. Given low rates from traditional lenders, it seems unlikely that there would be increased demand from borrowers, so do you think it's safe to assume that people are panic withdrawing at pretty high levels? I have low tolerance for risk in some other areas but I don't mind this risk at all for some reason - I quite happily reinvested a wodge today.
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Lenders are running away quite quickly. There's been quite a bit of disruption in the 1 month lending market, with not enough lenders available each day to "refinance" the existing loans.
By my calcs the supply has been cut in half. To the point where your 1 month loan is being carried over for a second month before you get your money back. And that timeframe is lengthening each day. Not what most lenders have signed up for but is what it is.
I placed a loan of $100k back in March @7.7% for one month... (to be repaid in mid April). I'm now expecting the funds back in 2 weeks time. The expectation was I could do this as a very short term thing while waiting for my new property purchase to settle (scheduled for next Wednesday).
Had I placed $200k I might not have been able to settle the property. Thanking my lucky stars for that decision not to be greedy.
I'd expect more cash to flow out over the next month. Ratesetter have all but stopped writing loans too, their total loan book has shrunk from $300m to $291m in a month.
I guess it's a good thing they are deciding not to approve new borrowers at this time when lenders are running away.
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I read your Ratesetter posts with interest, Marty
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i managed to chuck a few thousand at 20% back in March and it was repaid today (sadface)
loan volumes have roughly halved, green loans underwritten by Clean Finance Co keep flowing which is good news for the provision fund, it's still getting topped up.
Problem is they stopped updating the provision fund data in real time, and it's a big red flag i reckon. Keen to see the dynamics of how it will fair in the next couple of months, that's if they keep updating the numbers and if the numbers are actually trustworthy.
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The provision fund gets topped up by all borrowers on every repayment now (it's not all charged upfront, they changed it a few years ago?)
They used to update that provision fund at the end of each month (it was never done in real time). I too am annoyed the latest figures are at 14 April.
I have $83,000 that "entered the access queue on 16 April". So it is looking like next week that that money will come back... the delay is about to stretch out more than a month now, which means the amount of supply has dropped by more than half.
In the UK, they have halved the interest rate lenders receive and used the funds to top up the provision fund. This is to ensure lenders continue to receive a guaranteed positive return each month (no matter how small the positive is).
Half expect them to do it here soon too.
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The provision fund gets topped up by all borrowers on every repayment now (it's not all charged upfront, they changed it a few years ago?)
That's right, that was actually the catalyst for me to start withdrawing the funds as my long term loans were getting repaid. Some of those returned funds though ended up in 1 month market when the rates were attractive (as in above 4 pct). After a mild shock at end of March when several loans were not repaid on time i hit a pause for couple of weeks, but then started using 1 month market again, i reckon rates of 8 to 9 pct are fairly attractive and not going to last long. There are days when there is an influx of money on the platform, even the 5 year market was open for early access on Monday this week, not for long though.
In the UK, they have halved the interest rate lenders receive and used the funds to top up the provision fund. This is to ensure lenders continue to receive a guaranteed positive return each month (no matter how small the positive is).
Half expect them to do it here soon too.
i'm keen to hear more on this if you have more detail? and whether they can legally do that for existing loans as the lenders' contracts have a fixed interest rate?
but then, havent they effectively already done that with the last PDS by limiting the highest rate to 9 pct across all markets?
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The provision fund gets topped up by all borrowers on every repayment now (it's not all charged upfront, they changed it a few years ago?)
That's right, that was actually the catalyst for me to start withdrawing the funds as my long term loans were getting repaid. Some of those returned funds though ended up in 1 month market when the rates were attractive (as in above 4 pct). After a mild shock at end of March when several loans were not repaid on time i hit a pause for couple of weeks, but then started using 1 month market again, i reckon rates of 8 to 9 pct are fairly attractive and not going to last long. There are days when there is an influx of money on the platform, even the 5 year market was open for early access on Monday this week, not for long though.
In the UK, they have halved the interest rate lenders receive and used the funds to top up the provision fund. This is to ensure lenders continue to receive a guaranteed positive return each month (no matter how small the positive is).
Half expect them to do it here soon too.
i'm keen to hear more on this if you have more detail? and whether they can legally do that for existing loans as the lenders' contracts have a fixed interest rate?
but then, havent they effectively already done that with the last PDS by limiting the highest rate to 9 pct across all markets?
Details are on the Ratesetter UK website, I didn't read too far into it, but the policy will be in place until the start of 2021. The provision fund had dropped to a level well below the expected and experienced bad debt rate.
The rationale is that since lenders don't get to choose the borrower, it's not fair for one lender to feel the pain when a borrower defaults and the provision fund can't reimburse. So all lenders will share the pain in some way by way of a reduction in interest.
You can call it unfair if you like, but there aren't that many better options available to the platform to uphold the marketing guarantee of no dollar of capital lost.
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On the 9% limit.... it's basically to try and not scare the borrowers because they end up paying pay day lender rates above that.
At 9%....It starts at 9% for the lender, then add the margin that Ratesetter takes (10% of the rate), then add provision fund charges, then add Ratesetter fees as well and you you could get something approaching credit card interest rates.
Your average one year borrower who is subject to the vagaries of the one-month lending market knew they were signing up for a variable rate loan, but probably wouldn't expect their rate to jump from 10% to 20% from one month to the next.
It's not great for the brand when that happens.
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You can call it unfair if you like, but there aren't that many better options available to the platform to uphold the marketing guarantee of no dollar of capital lost.
aha, that's what it is!
https://www.ratesetter.com/blog/sp_announcement
https://www.ratesetter.com/stabilisation-period
the above two links is what ratesetter uk is doing in case anyone else is interested.
i'll be looking out for the next update on our local ratesetter's provision fund, assuming they keep the figures genuine, will be interesting to deduce the impact of the recent events
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Have pulled out substantially all of my one month loans that finally got refinanced a month late.
Just have $2,500 that will clear on Thursday, and then $6000 remaining in 3 and 5 year loans that I’m happy to leave alone.
Feel better now.
The provision fund has been updated as of 14 May, however whilst the fund balance has gone up (wow), the estimated bad debt and defaults have gone up more.
Fund coverage ratio is now 1.2x, but there doesn’t seem to be enough to cover current bad debts and defaults at the present time.
Size of the loan book has dropped again to $288 million now.
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Marty, are you dialing in for the webinar tomorrow? Might be a good idea to ask difficult questions and get the insight straight from the horses mouth. I'm keen, but have a conflicting work appointment, will likely only listen to the first 15 minutes.
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I probably won't be able to, got a couple of work calls on at the same time.
Don't think it will be simple for people to ask questions if there's a hundred on the line. I did get a chance to speak to the CEO a couple of years ago. He's seems alright, but he's paid to put a positive spin on everything.
Back then everything was rosy so it was easy for him :)
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Now certainly isn't the best time to jump into RateSetter, but stumbling across this thread has me interested in the whole thing after the COVID-19 situation ends.
It looks like they aren't taking new lenders (though it would have been awhile before I would invest with all the craziness going on right now).
Still, I am curious, do I need to be a UK citizen or use the pound in order to invest or can US Citizens invest in ratesetter?
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Now certainly isn't the best time to jump into RateSetter, but stumbling across this thread has me interested in the whole thing after the COVID-19 situation ends.
It looks like they aren't taking new lenders (though it would have been awhile before I would invest with all the craziness going on right now).
Still, I am curious, do I need to be a UK citizen or use the pound in order to invest or can US Citizens invest in ratesetter?
They are most definitely taking lenders on the Australian platform. You would need to comply with your own tax rules (and be mindful of foreign exchange rate movements too).
Lending club is the equivalent over there? Although they seem to be in a rather awful lot of difficulty.
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Anyone else changing their Ratesetter strategy in light of the new maximum rates to be applied on 14th July?
https://www.ratesetter.com.au/faster-simpler-investing/
Since the rates have declined over the last 2 years I have not been putting any new money into Ratesetter and simply reinvesting at market rates with averages over the last 12 months about 7% in 5-year market. This will more than likely push me to stop reinvesting and start slowly pulling the money out. 6.2% max doesn't feel like it is adequate compensation for the risk.
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I saw that....and read through the blog post.
In the context of a shrinking lending book and a higher proportion of remaining loans being in arrears it make sense for Ratesetter to do something to attract higher quality borrowers.
It will irritate a lot of lenders but they seem to have no shortage of supply (I’ve been watching the number of new accounts set up the last few months, almost 2000 new lenders).
My money is still slowly being withdrawn about $150 a month. Lately I’ve been getting a few extra repayments... might be due to people withdrawing Super to pay off debts.
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I saw that....and read through the blog post.
In the context of a shrinking lending book and a higher proportion of remaining loans being in arrears it make sense for Ratesetter to do something to attract higher quality borrowers.
It will irritate a lot of lenders but they seem to have no shortage of supply (I’ve been watching the number of new accounts set up the last few months, almost 2000 new lenders).
My money is still slowly being withdrawn about $150 a month. Lately I’ve been getting a few extra repayments... might be due to people withdrawing Super to pay off debts.
I've also noticed that I've been getting more extra repayments coming in, however I took the opposite (cycnical?) viewpoint that this was due to more people defaulting due to Covid-19 fallout and then the lender getting paid out from the provision fund.
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Back to full withdrawal mode for me, it was good while it lasted
Loved this blurb in the email: "these changes will deliver important benefits for our investors" - they clearly forgot to put the sarcasm hashtag.
Have to say that overall they stopped delivering a consistent message, one hand talks about the marketplace and rates regulated purely by supply and demand; then suddenly the rates are set by the ratesetter themselves, talk about a fitting name!
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The corporate double speak knows no bounds. Apparently it makes it simpler for us too?
But sometimes I wonder why a decision like this hasn’t happened sooner. When you add the Ratesetter 10% of interest margin, fees and provision fund charges, the rates the borrower pays are grossly uncompetitive with bank personal loans.
Perhaps the whole flaw is that lenders don’t really choose the risk they take on. At some point it needs to stop being called Peer to Peer and you’re simply just funding another financial institution?
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Change of name to Plenti, and now an IPO on the cards.
Will be very interesting to see their own financials. Doubt they are making much by way of profits.
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based on how they've treated their investors in the last few months, i'm not real keen to find out how they would treat retail shareholders
and the new name is rather weak in my opinion
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Where are you seeing the name change? I see the acquisition stuff, but nothing about the name change.
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Where are you seeing the name change? I see the acquisition stuff, but nothing about the name change.
Login to your account. Pretty clear the name change ☺️
Also, see here attached:
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Some light reading for the night! (https://web.automic.com.au/er/public/api/documents/PLTU?fileName=Plenti_Group_Limited___Prospectus.pdf)
The spiel looks quite good so far, but they're still losing money... another 'growth' stock i wonder? But AFR has reported the broker offer was filled in less then a day, hmmm.
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An IPO prospectus is the only time where companies have to air ALL their dirty laundry.
Table on page 89 with the average interest rate (including fees) charged to most borrowers is over 14%!
Lenders like us have been capped at 6.5%....
So there’s a blatant attempt by Plenti to dress up the 2021 forecast revenue numbers by expanding their net interest margins.