Join other 4thWay HNW investors: harness your combined power for an even better deal.
Same loans, higher rates, more loans, risk guarantees. Join now for free!
Buy And Sell Existing Loans On Proplend
Proplend has now launched a “secondary market”, which is where you can buy and sell existing loan parts.
Previously, with Proplend, you could just lend your money at the start of a new loan and there was no secondary market where you could sell it on to exit the loan early.
You might want to buy an existing loan so that you don't have to wait for a new one to start, for example. Or you might want to sell because you want the cash early for something else.
Now, you can sell your existing loan parts early for a 0.5% fee, which is taken from the amount you receive on selling the loan part to another lender.
If you want to sell out of a loan, you have to sell your entire holding; you can't, say, halve the amount you have in the loan.
If you want to buy an existing loan part, you pay no fees and you receive all the interest from the last loan repayment date onwards.
When the seller takes a hit and the buyer gains
The seller might have a £10,000 loan part up for sale. However, if the seller is having difficulty selling, you might just have to pay, say, £9,900. When the borrower repays the loan part you've taken over, you'll get £10,000 plus interest on £10,000.
You don't have to pay tax on your £100 windfall.
Why might the seller have difficulty selling, you ask? The seller would have difficulty selling if the economy or property market has turned down and lots of lenders are worried about losing money.
Another reason could be that there are too many loan parts for sale and not enough buyers. Or there might be plenty of other loans that either look lower risk or pay more interest, or both.
That's when the seller would sell the loan part for less.
The more desperate the seller, the lower the price you might be required to pay to buy the loan part.
When the buyer takes a hit and the seller gains
On the flipside, the seller might sense that lots of people are likely to want to buy the loan, even at a premium.
So the seller might allow you to buy the £10,000 loan part for £10,100 – or more. You'll just get £10,000 back from the borrower, plus the interest on £10,000, not on £10,100.
You can't offset that £100 hit against taxes.
Why might a buyer be willing to do this? Because you might still earn far more in interest than the extra £100 cost.
Or it could be that there are not many other loan parts around, or that most other loan parts currently seem to be higher risk or pay lower interest rates.
Or perhaps the new loans currently on offer at Proplend all pay lower interest rates and the buyer still gets a better deal overall by taking the hit to buy this existing loan part at a premium.
There might also be a far more people excited about lending at this point in time, perhaps because the economy and property is doing so well.
A completely open market
Proplend has a completely open secondary market, which means that you can even buy or sell loans that are being paid late or in default. This is much like the stock market.
The only other completely open secondary market in P2P lending that we know of is through FundingKnight.
A completely open market means that those holding damaged loans can still get some of their money back early and other investors can potentially still make a profit by buying loan parts at a fraction of their original value and gaining when the borrower starts repaying again or on the sale of the property that the loan was secured against.
Proplend founder Brian Bartaby told us that while all loan parts can be bought and sold on the secondary market, “this may change over time”. No Proplend loans are currently being paid late and none have gone bad.