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An Amateur Looks for Low-Risk P2P Lenders
Welcome back to those who read my previous article (Follow Me as I Learn to P2P), and welcome to those who have not.
In my previous article, I revealed my desire to save/invest after having my curiosity piqued by reading some 4thWay® articles. I am a technical co-founder here after all, so it's about time I did.
Enough of banks, shares and property and time for something new!
Now, I will take the next step towards finding and choosing the best P2P lending company that will meet my objectives and within my specified conditions. I move closer to my goal…
I envy you all. It's a lot quicker to get your money out on loan if you don't have to write down your thoughts as you go along.
It's not like choosing a savings account
Kick off time! There is a long list of factors to consider and options to choose from.
I'm beginning my search using 4thWay's comparison tables. To that end, I need to enter a few details about what I want:
I am in the amateur league of P2P lending so, I will play it safe with my £500 and find lenders who are low risk. This is my only criteria. Well, in addition to a good rate of return!
From the guides available to read on this site, I have learnt that longer lending periods offer more favourable rates. So, I will opt for five years.
I don’t mind who selects the borrowers: me or the P2P lending company. Indeed, it might be fun to get my fingers sticky. (Yes, back to the ice cream in my previous article.) But I will keep my options open by restricting my shortlist to opportunities that allow an early exit. You never know!
Which options are lowest risk?
The 4thWay® Risk Ratings are all in the same band, as expected; they all have a low calculated risk. The ratings are all very close: 10 to 13.
Editor's note: Ash didn't explain, but a score as low as 8 would practically put the P2P lending opportunities at as low risk as savings accounts. 50 is currently the highest score, but this will be beaten considerably by the time 4thWay® has calculated the Risk Rating of all of the P2P lending opportunities.
The interest rates look very attractive (with a cherry on top) of between 5.1% and 6.6%. This is a little lower than I had expected, but still considerably better than a savings account.
The types of loans are varied, covering quite different types of borrowers: from business to consumer (secured and unsecured) to property developers.
I’ll compare three of the products with the best interest rates in detail. After all, I'm in this to earn interest. That's my reasoning anyway. (Be gentle. It's my first time.)
The three products are RateSetter’s “super-prime”, mostly unsecured consumer loans”, Funding Circle’s A+, “very low risk” business loans and Lending Works' “super-prime” unsecured consumer loans.
Getting quite detailed now…
Now, I move onto the next step of reading the 4thWay® Insight Reports on each of the lenders listed. There are lots of points covered in these reports. So due to time constraints today I shall just look at the first section on interest rates and 4thWay® Risk Ratings.
Editor's note: Ash is being very thorough here. We don't expect that people lending small amounts at low risk will read the full Insight Reports!
Factors such as bad debts, fees and idle money are being considered here. So, at least I can compare these numbers with those from other lenders, which I will come to in my next article.
RateSetter has the lowest 4thWay® Risk Rating of 10.* Close to – but not exactly – savings account risk. It has zero historical losses – not one lender has lost money – and a large bad-debt provision fund. That certainly puts my mind at ease.
Funding Circle's A+ loans have an overall 4thWay® Risk Rating of 13*, which as the article states is a surprise, because there is no bad-debt provision fund. There have been some historical losses, as opposed to RateSetter’s nil. Uh oh! But it is low due to its tight selection process. Phew!
Lending Works also has a 4thWay® Risk Rating of 13. The figures look good, such as no historical bad debts. But they have only been around for a year, so there is little history to go on. But the bad-debt fund is there and the late payments have been virtually 0% so far.
RateSetter has the advantage so far, although it's not quite half-time yet. I need to learn to type faster…
Next I'll look at more highs and lows for these three lenders and hopefully choose one of them!
4thWay® Risk Ratings: no risk-rating system is ever perfect and they cannot consider all factors and future events. Read more about the 4thWay® Risk Ratings.
Commission: our service is free to you. All P2P lending companies will be included in our fair and accurate comparison tables once we have finished adding them all. We receive compensation from all the P2P lending companies mentioned in this article and some of the other P2P lending companies for providing you with their 4thWay® Risk Ratings and 4thWay® Insight Reports for free. We’re paid when you click through from us and open accounts with them. This doesn't affect our editorial independence. Learn How we earn money fairly with your help.