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Post by davee39 on Feb 2, 2014 11:25:59 GMT
Personal View. About a year ago I pulled out of FC after investing about £2000. I had one default and one A+ with enough comments to fill a novel which makes occasional payments. The sold loans mainly went at a premium and I was happy. Now, with time on my hands after retirement, I am slowly going back in. I dislike about 90% of the pitches (especially businesses going to the next level!) so I am putting in about £100/week in £20 bids mainly to manufacturing companies.
Now the contentious bit.
FC allows loans to be sold at a premium of up to 3%. If you can sit at your PC when an auction closes, and the auction is for a reasonably large sum, there is a chance of getting bids in at a rate significantly higher than the average rate for the loan. These loan parts become extra valuable in the secondary market because you can charge a higher rate. If you have the right skills you can develop a bidding bot to do all the hard work for you. So the secondary market now provides a trading opportunity for investors, who are investing their capital in the hope of making a profitable trade. If the loans do not sell, and do not default, they still pick up the interest. Furthermore sticky loans can always be sold to Auto bidders.
There are those who vociferously object to loan traders.
Worth putting money in? YES IF YOU INVEST IN SUFFICIENT LOANS (At least 100) and never Auto-bid
How to invest
If you want to buy a chocolate bar you pay for it giving the retailer a small profit. If you want to make a chocolate bar you can spend many hours mixing sugar milk and cocoa.
On FC, if you have time, you can bid for loans and build up a portfolio. Alternatively you can look for loans you like on the Secondary Market to get money invested more quickly. If buying a loan read the original listing and AVOID buying any loan which has ever made a late payment. Forget about directors guarantees. The dishonest directors will have hidden their cash in the wife's name. The honest ones will have already bled themselves dry trying to keep a struggling company afloat. Follow your gut feeling - if you have any doubts give the loan a miss.
And a final confession - last week I acquired a £20 loan part at 14% and have just earned 60p selling it on
Cheers
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Post by chielamangus on Feb 2, 2014 11:48:05 GMT
I agree with most of what has been said. The strengths & weaknesses of FC have been sussed. It all comes down to how you value your time. If you have plenty of it, don't value it highly or you like the game, then FC gives you plenty of opportunities for enjoying yourself and making 5-7 per cent before tax on your capital. For the serious investor whose time is money, I reckon you need £50k minimum to invest with minimum bids of £500 per loan, but perhaps people with this investment want a rather better return. The big issue on most P2P platforms is the level of defaults. I think FC have been realistic to date in their estimates of these, but I am not certain most investors factor these in when making their bids. If they do, then a lot of investors are satisfied with low returns. Default rates on other younger platforms are lower, but give them time ....
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Post by bracknellboy on Feb 2, 2014 11:53:39 GMT
And a final confession - last week I acquired a £20 loan part at 14% and have just earned 60p selling it on That makes you a bit of a SOD. (see glossary thread) My guess is that is Arthur Daley. I note that after a period of full payments and half value catch up payments we recently went back to the dreaded "Borrower is waiting for a cheque to clear"/"We have asked for proof of payment" mode.
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spyrogyra
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Post by spyrogyra on Feb 2, 2014 12:31:16 GMT
Angry saver, be warned, FC is addictive. Rates go up and down, great demands or shortages of supply affect the sales volumes on the secondary market. It's a bit like the stock exchange. If expecting the unexpected is something that thrills you, you've found the right place. But don't forget it's your money.
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angrysaveruk
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Say No To T.D.S
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Post by angrysaveruk on Feb 2, 2014 18:01:52 GMT
thanks for the additional replies. I can see how it could be fun trading loans although the whole thing of unsecured loans to companies puts me off especially if the director guarantee is worthless and they are not perusing bad debt. It is just to easy for companies to default and the directors to walk off with the loan money. Assetz looks interesting with the secured loans but I am a bit cautious about putting money into new p2p lenders so I will wait to see how their capital base grows. 6% on 5 years at rate setter for A rated consumer credit is where I'll stick my money for now  Assuming their underwriting process is well thought out, The kind of situation in which you are going to get serious levels of default on those types of loans are probably the same situation in which the government will start taking depositors money out of their accounts to stop the banks failing. |
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Post by GSV3MIaC on Feb 2, 2014 20:54:25 GMT
<pedant mode on>
They peruse the bad debts right enough, they just don't persue them.
Actually I suspect it was a typo? Damn spell checkers ...
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jimbo
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Post by jimbo on Feb 2, 2014 21:05:30 GMT
The kind of situation in which you are going to get serious levels of default on those types of loans are probably the same situation in which the government will start taking depositors money out of their accounts to stop the banks failing. Ah, the good old "bail-in", where savers are treated as unsecured bank creditors; otherwise known as getting "Cyprused" (EU anyone...). You can't beat it...
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merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Feb 3, 2014 7:17:41 GMT
... So the secondary market now provides a trading opportunity for investors, who are investing their capital in the hope of making a profitable trade. ... And a final confession - last week I acquired a £20 loan part at 14% and have just earned 60p selling it on Cheers I'm pleased that you're enjoying your investing experience but I think it might be worth pointing out that if you are trading loans then this would be an activity that HMRC would want you to declare and be taxed on. I don't know if it's the case that they would want tax on any profit (your 60p) or only on the profit that exceeds the FC fees. Not sour grapes, just wanted to give you the heads up. Yes HMRC are most certainly interested in any profit you make. Just how to calculate the figure to declare is a bit of a conundrum. I would have thought it would be reasonable to deduct FC's charges from interest earned but we cannot deduct any losses and this is the rub. Yesterday I worked out from FC's tax figures just what I had made over the last calendar year and what I was going to have to pay HMRC. Whilst I was not very surprised with the result, I found that net after 40% tax, FC charges and losses I would end up with 1.37% profit on my five figure investment and this was from a headline rate of interest of 11.1% quoted on my Summary page. Clearly it is the losses that do the most insidious damage and from my experience they cannot be avoided any more than HMRC can.
On the subject of HMRC. I can imagine that there are a number of HMRC investigators who are probably keen to make a name for themselves just itching to get FC's listing of interest paid and to whom in April. They can then later in the year, when the tax returns have come in, start to pursue those who have not owned up to having earned a few pennies from FC. My guess is that in this electronic age such an event wont be left to chance and anyone stupid enough to believe it is will get an unwelcome surprise.
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blender
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Post by blender on Feb 3, 2014 8:47:20 GMT
I think that if you are taxed as an individual and not a business of any sort then HMRC are not interested in your profit but in your taxable income and taxable capital gains. The 60p, I have always thought, is a taxable capital gain and therefore to be set against the annual allowance for CGT, less any disposal costs which might include FC's 0.25% fee - but I am no authority. Most of us do not need to worry about even declaring the gains or losses from loan part premiums or discounts, I believe.
I agree that there may be a systematic trawl through the records to see who has not declared their income through FC. Personally I would prefer deduction at basic rate at source. Being retired and not doing self assessments, I just phoned up HMRC, declared my net interest and they sent me a bill for the tax. Easy. You will notice I said net interest, after the 1% fee, which is what FC's tax statement seems to suggest (or last time I looked). There have been suggestions that tax should be paid on gross interest, but that would be addding insult to the injury of being taxed on losses as if it were income. We will see how that plays out when FC has to deduct tax at basic rate - will it be gross or net?
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Post by bracknellboy on Feb 3, 2014 9:09:35 GMT
I think that if you are taxed as an individual and not a business of any sort then HMRC are not interested in your profit but in your taxable income and taxable capital gains. The 60p, I have always thought, is a taxable capital gain and therefore to be set against the annual allowance for CGT, less any disposal costs which might include FC's 0.25% fee - but I am no authority. I agree with that: I'm pretty sure that FC's website gives/gave guidance on how this is dealt, but yes logic says its a capital gain not income. Net, I'm 99.9% sure. a) its the way FC's tax statement is structured b) fees are only charged against specific payments received: if interest is not paid there is no fee applied. Logic therefore tells me the actual income received is minus the fee.
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Post by davee39 on Feb 3, 2014 9:10:36 GMT
Non taxpayer. All income is fully declared via self assessment - its another way of whiling away the hours filling in in £3.30 here and £2.20 there, with the satisfactory confirmation that no tax is due at the end!
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merlin
Minor shareholder in Assetz and many other companies.
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Post by merlin on Feb 3, 2014 10:08:20 GMT
The whole point of my original post was in response to the thread title, "is Funding Circle Worth Putting Money In" I have said on here and tried a couple of times to say on the FC Forum but got moded, "not if you are a higher rate tax payer". However my experience with losses may be worse than average but somehow I doubt it! Also if FC were on the ball with recoveries, which currently they do not appear to be, then my gains could look quite a bit better. I have been aware of these factors for at least six months and have now moved most of what I had in FC to AC. The reason is simple I cannot avoid HMRC but I can avoid the losses!
My guess is that most people who have five figure sums to invest will be higher rate tax payers unless they are retired. Then if you are retired losses will be a significant worry.
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angrysaveruk
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Post by angrysaveruk on Feb 3, 2014 10:51:14 GMT
<pedant mode on> They peruse the bad debts right enough, they just don't persue them. Actually I suspect it was a typo? Damn spell checkers ... Probably a combination of bad spelling and the auto correct on the IPad. Or it might be the universe trying to tell me something
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blender
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Post by blender on Feb 3, 2014 11:56:19 GMT
I think that if you are taxed as an individual and not a business of any sort then HMRC are not interested in your profit but in your taxable income and taxable capital gains. The 60p, I have always thought, is a taxable capital gain and therefore to be set against the annual allowance for CGT, less any disposal costs which might include FC's 0.25% fee - but I am no authority. I agree with that: I'm pretty sure that FC's website gives/gave guidance on how this is dealt, but yes logic says its a capital gain not income. Net, I'm 99.9% sure. a) its the way FC's tax statement is structured b) fees are only charged against specific payments received: if interest is not paid there is no fee applied. Logic therefore tells me the actual income received is minus the fee. I agree that is how it should be, Bracknell Boy, because the 1% fee is a charge consequent upon receiving interest. However I would not go past 90% confidence, maybe less, because firstly the interest is actually paid gross into our available funds and the 1% fee is a separate deduction from our available funds. Interest is not actually paid net of commission. Secondly the fee is not a percentage of the interest received but of the outstanding principle, and so the amount is not determined by the amount of interest received. And thirdly there was a posting some time ago, I think on the 'official' neutered forum, from an unhappy person whose accountant had insisted he should pay tax on the gross interest. This was never resolved and of course FC could not comment on tax matters. I thought the person should get a new accountant, but it worried me a bit. I think it is true that the value of FC is greatly dependent on your tax position. If you are not a tax payer then maybe even Autobid is ok, given that no time is spent. If you are retired and a basic rate tax payer and have sufficient time and interest to maximise returns through default dodging then I think FC is ok. My current net return according to FC is 8.6%, on quite a large sum over about 18 months - though it will not stay that that level with FC's current messing about with collections policy. Higher rate tax payers should probably be elsewhere, IMO. I have not compared the other platforms. FC aint broke yet, for me.
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Post by bracknellboy on Feb 3, 2014 13:52:21 GMT
U are right that my 99.9% was a silly statement. And yes, understood on the paid gross part. Although their tax statements give a very strong indication of how they think it shojuld work. I think that is arguably semantics. The interest paid is also directly proportional to the amount of outstanding principle (not least because FC only does amortising loans). That is interesting. So perhaps I should revert to a post I made some time back, and which you in effect repeated: it will interesting to see how this is dealt with following advent of tax at source.
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Assuming their underwriting process is well thought out, The kind of situation in which you are going to get serious levels of default on those types of loans are probably the same situation in which the government will start taking depositors money out of their accounts to stop the banks failing. 
