New loan (59836) paying 1.9%?

I emailed a while back, and just got a super patronising reply explaining how FC works, which as a customer for 6 months previous, I kinda should already know, don't ya think?

I sent a stronger worded email back, and just basically received the same explanation again, but in even more pointless detail. Felt very much like a copy-paste from the "FC corporate manual of treating customers like idiots".

I'm pondering whether to jack it all in with them and move it elsewhere now.

Funding Circle make a cut of arranging each loan and take a fraction of the interest paid to investors/lenders.
This might mean that they a big incentive to maximise their 1% over our 10% and leaves the lenders hung out to dry.

After reading this thread I looked at my loan sheet and found a 2.7% loan added to my portfolio very recently. I have emailed FC to ask what all this is about. No reply yet.

I have emailed FC re this 1.9% and 2.7% loan issue. They have answered in the usual way, and have pointed out to me the 'balanced portfolio, blah, blah, blah'. They also mentioned that the new highest rate is an alarming 22.9%. I struggle to work out how a company desperate enough to take them up on a loan with a 22.9% interest rate will stay the course of payments. Any thoughts, people?

It doesn't really work like this though.

Getting a loan with a higher rate doesn't necessarily mean you will get a higher return as the risk is correspondingly higher meaning there is a higher risk of default.  The algorithm aims to set everyone a similar estimated return after defaults and fees (not a similar average interest rate across their portfolio).....the actual return you get could in theory be higher or lower depending on your portfolio's actual bad debt performance.  It is worth noting that a month ago FC revised down their projected returns for a balanced portfolio from 7.0%-7.5% to 6.0%-7.0% due to a higher actual/anticipated level of defaults. In my view this will have to be revised down again in the future.

Turning to the 1.9% loan in question, the reason people are so annoyed is that after fees, the yield on this loan is 0.9%.  There is a risk of default so the expected return on this low is therefore below 0.9% (FC obviously consider this a small risk but it is a risk nonetheless alongside the platform risk).  This rate is less than you can get in a risk free FSCS instant access savings account (and a loan is not instant access by any means).  So whichever way you look at it it's an absolutely abysmal investment.  You are also guaranteed a return below the projected return...that means to balance it out your portfolio will be allocated a much higher risk loan to compensate, increasing your chances of a default.  FC meanwhile sit in the middle and get paid their equal 1% fee on each loan part.  The reward just does not justify the risk.

In my view FC bring loans like this as a simple way to ramp their volume up to boost their revenue in the hope that most lenders won't notice (which they won't)......demand is outstripping supply, they need more loans.