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Welcome back to the third course of my 4th way.
For my returning readers you’ll know that I began to look at the idea of venturing into P2P lending in Follow Me As I Learn to P2P.
When I had reduced my selection down to three I started to look at the lenders in a little more detail in An Amateur Looks for Low-Risk P2P Lenders.
My chosen three lenders and products are RateSetter, with its “super-prime”, mostly unsecured consumer loans; Funding Circle’s A+, “very low risk” business loans and Lending Works’ “super-prime” unsecured consumer loans.
I looked at bad debts in my previous article. Now I will look at fees and the consequences of idle money in my account and finally choosing a winner from the a la carte menu! You may be aware that I am chewing off more information than I need to for a relatively light dish (the sum of my investment). But I am using this opportunity to learn a little about the various herbs and spices that make up the lending dish!
The costs of lending
So, I’ll begin with RateSetter’s fees. According to their 4thWay® Insight Report there is no way for me to know how much they actually cost me! But when I look at 4thWay's detailed comparison table again I notice there are a few in the same position.
What about Funding Circle? The cost to me for lending is approximately 1.81% to 3.2%, which does compare pretty well to other P2Ps who do similar amounts of work.
Finally, we come to the third entrant in my main course, Lending Works. Again, much like Rate Setter, the Comparison Table and Insight Report states the fees are unknown. But based on a few assumptions the report does say it is probably similar to the others. Besides does it matter for this relatively small amount; well, let’s face it I’m no Warren Buffett. More like Breakfast Buffet!
When you lend and get loan and interest repayments, you sometimes end up with money sitting around waiting to be lent out. This means you can't earn interest on that money.
RateSetter does a pretty good job ensuring very little is sitting idly. So that sounds very promising. So no serious indigestion yet!
Funding Circle doesn't state how much money is typically sitting around. However, it does an awful lot of loans and it has a secondary market, which means if I'm desperate to get my money lent immediately I can buy parts of existing loans off other lenders, for a 0.25% fee.
Lending Works offers no information about how long money could be sitting around.
Other factors I considered
As I started to read (OK skim) through the reports I started to realise and subsequently considered two other factors in addition to all the information I have written about; the cream on top of my black forest gateau so to speak: diversification and regular investments.
This is to ensure I minimise my risk and don’t lose the value of my interest to inflation, respectively. I know, I sound very sensible and serious now!
If I ever have the desire to lend a larger sum of money than I am doing here, there are plenty of other facts and statistics that I can also consider. I can look up these cherries and berries in the comparison tables or read a little deeper into the 4thWay® Insight Reports: transparency, the bad debt fund, measures to protect my money, setting up automated lending.
I could also have selected borrowers myself (that would be fun; a pick your own fruit-and-vegetable garden).
Where did I put my money?
So, I've finally done the deed. I liked the idea of diversification. But I decided take this one step further by lending £500 through all three of the companies mentioned above. I’m just having my cake and eating it by ordering the starter, main and dessert!
I hope you have found some inspiration in my thoughts and desire to tread the sparkling mineral water of lending. The great thing is you can lend as little or as much as you like, and even pull out if you really need to. You can just sit back in your sofa and let the work be done for you or be a little more proactive. The menu is too good to not taste a little of each! Bring on the wine and cheese!
Good luck with your 4th way.
*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from Funding Circle, Lending Works and RateSetter, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.