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Post by khampson on Aug 5, 2017 8:11:47 GMT
I can get a £10,000 loan at a interest rate of 2.8% and repayments would be £178.74 for 5 years (total amount payable £10,724.40)
now say I invested this in peer to peer in the following interest rates.
£10,000 invested for 5 years at 12% = £18,166.97 (£7442.57 profit)
£10,000 invested for 5 years at 9% = £15,656.81 (£4932.41 profit)
£10,000 invested for 5 years at 6% = £13,488.50 (£2764.10 profit)
£10,000 invested for 5 years at 4.25% = £12.363.02 (£1638.62 profit)
Now I understand the risks of P2P and the numbers quoted above are before bad debt and tax and assuming you are fully invested, what are your thoughts on this, I am sure some people do this, I can afford the repayments should my investment go south, also another option is my credit card that is 0% for 26 months at £4000, I can run up rhe card to the max and put the £4000 into savings (12% for 24 months would give you £1078.94 worth of interest)
I think some would regard this as risky due to other factors, I see it as a great investment, but I would like to see what others think. I am very disciplined and have access to other funds should i need the cash, this just looks so tempting,
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hazellend
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Post by hazellend on Aug 5, 2017 8:18:04 GMT
It is tempting.
My CC just offered me 0% interest for money transfer for 3 years for a 3.5% fee up front.
Something just feels wrong to me about it though. Plus, don't know if I can be bothered.
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jonah
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Post by jonah on Aug 5, 2017 8:23:24 GMT
I stooze and put the money into p2p. But only at 0 fee and 0% rates. Therefore any post tax / post losses profit is mine.
One issue to consider, loans or credit cards need monthly repayments, so you either need amortised loans or enough cash float to cover them.
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Post by khampson on Aug 5, 2017 8:38:30 GMT
you could just the 178.74, cost of the loan repayment directly into p2p platforms and this is the interest I would get on my investment assuming I am fully invested before tax and bad debt and that I am fully invested.
£178.74 invested at 12% for 5 years = £14,964.12 (£4964.12 profit)
£178.74 invested at 9% for 5 years = £13,536.83 (£3536.83 profit)
£178.74 invested at 6% for 5 years = £12,490.98 (2490.98 profit)
£178.74 invested at 4.25% for 5 years = £11,927.69 (1927.69 profit)
as opposed to borrowing £10,000 and investing it
£10,000 invested for 5 years at 12% = £18,166.97 (£7442.57 profit)
£10,000 invested for 5 years at 9% = £15,656.81 (£4932.41 profit)
£10,000 invested for 5 years at 6% = £13,488.50 (£2764.10 profit)
£10,000 invested for 5 years at 4.25% = £12.363.02 (£1638.62 profit)
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skippyonspeed
Some people think I'm a little bit crazy, but I know my mind's not hazy
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Post by skippyonspeed on Aug 5, 2017 8:41:09 GMT
If you were unable to get your p2p investment back when you needed to repay your "cheap" loan. You could find yourself in trouble because the default rates on these sort of "cheap" loans is usually enormous if you go beyond the term.
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Post by khampson on Aug 5, 2017 8:56:40 GMT
If you were unable to get your p2p investment back when you needed to repay your "cheap" loan. You could find yourself in trouble because the default rates on these sort of "cheap" loans is usually enormous if you go beyond the term. its a fair point, the cheap loan is actually offered by quite a large investment company, This was why I included various interest rates on the investment to allow for diversifying the money, I would not drop 10k into 1 platform as this could create problems, for instance I would do: £2000 Moneything at 12% £2000 Unbolted at 12% £2000 Azzetz 30 day 4.25% £2000 Growth street 30 day 6% £2000 Collateral 12% (this would give me a 9.25% return before fees, bad debt and tax) If I did it like that as an example in theory I should be able to get at least £4000 within 30 days, alternatively another option would be to withdraw the interst and make over payments on the 10k loan and reduce the term (I have not calculated the impact that this would have on the return. Withdrawing the interest monthly on £10,000 would make around £77.08 each month assuming you return is 9.25% with the £77 over payment it will reduce the 10k 60 months loan to 42 months and saving £229 in interest
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littonowl
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Post by littonowl on Aug 5, 2017 9:16:57 GMT
I've looked at this in the past too. Don't have all my workings to hand right now, but the £178 monthly repayment equates to £2144 p.a, so quite quickly your initial £10k lump sum is eroded and you've a significantly smaller pot to invest with as the year's go by. Assuming you make 8% return on your investments in year 1 (bearing in mind cash drag etc.), that still drops your starting pot at year 2 to c.£8,600.
Most of the gains therefore are made in year 1 and 2 when your 'pot' is still of reasonable size, but you will get ever diminishing returns as the years go on. Years 4 and 5 you are left with c.£5k or less to invest depending on how well your investments have done, and the interest earned from this sum may not even be large enough any more to cover the loan's monthly payments.
You will still likely make on the deal over the 5 years, (assuming no big defaults etc) but your sums look a tad on the optimistic side to me, especially as 5 years is a long time in a relatively unproven industry, with quite a few dark clouds already looming on the economic horizon.
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Post by khampson on Aug 5, 2017 9:20:35 GMT
I do this-50% geared in P2P. Was all at 0% but as I have run a lot of cards I need to give it a break. One ran out last month, repaid it and they gave me a balance transfer for 1.5% fee, then 0% to clear a spending card, and I have a loan of 20K at 2.9%. That being said, I do my sums twice weekly for P2P invested and cash owing to keep a close eye on it, and I am not in the best tax position (60% zone) so margin investing for me is a poorer return on time and risk than it would be for many others. Whilst a big loss would be a real hit, I have 2-3x the borrowed amount in my fund and share account to cover it so I would not not go under but certainly be poorer. Technically if your loan provider excludes investing as a purpose you would be guilty of fraud potentially. I gave reasons for the loan which I am fulfilling - without the loan I would have sold some P2P to do the work so it is a moot point as to whether the P2P money is mine or the loan. When applying for a loan online I have never seen the question why do you want to borrow the money and investing being an option, I don't see how they could police the fact that investing is against the terms and conditions by investing the money technically speaking when the release the funds and I put it in my santander123 account I am technically investing, even if I put the loan was for a car or home improvements, I could invest that money until I decided on what car I would like, when I see a car I want at the right price, also home improvements I could hold the funds until I am ready to go ahead with the plans as so on, unless they directly say you can not invest the funds I cant see how they can stop you?
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littonowl
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Post by littonowl on Aug 5, 2017 9:23:21 GMT
If you were unable to get your p2p investment back when you needed to repay your "cheap" loan. You could find yourself in trouble because the default rates on these sort of "cheap" loans is usually enormous if you go beyond the term. its a fair point, the cheap loan is actually offered by quite a large investment company, This was why I included various interest rates on the investment to allow for diversifying the money, I would not drop 10k into 1 platform as this could create problems, for instance I would do: £2000 Moneything at 12% £2000 Unbolted at 12% £2000 Azzetz 30 day 4.25% £2000 Growth street 30 day 6% £2000 Collateral 12% (this would give me a 9.25% return before fees, bad debt and tax) If I did it like that as an example in theory I should be able to get at least £4000 within 30 days, alternatively another option would be to withdraw the interst and make over payments on the 10k loan and reduce the term (I have not calculated the impact that this would have on the return. Withdrawing the interest monthly on £10,000 would make around £77.08 each month assuming you return is 9.25% with the £77 over payment it will reduce the 10k 60 months loan to 42 months and saving £229 in interest Not to pour cold water on your calcs, believe me, if I felt confident it would work/be the worth the hassle, I'd do it too, but you don't get 12% on Unbolted. Rates vary from 0.65% pm (7.8%) to 0.85% (10.2%). On your other point about use of loan funds, I did a mock application with one company (think it might have been Santander too!) and they did specifically say in their terms that this money could not be used for investment purposes...
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Post by khampson on Aug 5, 2017 9:34:43 GMT
I've looked at this in the past too. Don't have all my workings to hand right now, but the £178 monthly repayment equates to £2144 p.a, so quite quickly your initial £10k lump sum is eroded and you've a significantly smaller pot to invest with as the year's go by. Assuming you make 8% return on your investments in year 1 (bearing in mind cash drag etc.), that still drops your starting pot at year 2 to c.£8,600. Most of the gains therefore are made in year 1 and 2 when your 'pot' is still of reasonable size, but you will get ever diminishing returns as the years go on. Years 4 and 5 you are left with c.£4K or less to invest depending on how well your investments have done, and the interest earned from this sum may not even be large enough any more to cover the loan's monthly payments. You will still likely make on the deal over the 5 years, (assuming no big defaults etc) but your sums look a tad on the optimistic side to me, especially as 5 years is a long time in a relatively unproven industry, with quite a few dark clouds already looming on the economic horizon. Appreciate that littonowl, yes my calculations were based on being fully invested on day 1, this can happen by using Assetz capital, Ratesetter, or growthstreet but would certainly impact on the initial figures I quoted, it may take 3 moths to reach 9.25%, you are also correct on an economic downturn we are in dark environment but I do this this could be reduced by carefully selecting platforms, Zopa went through an economic downturn and came out relatively undamaged, I think diversification is the key over a number of platforms, but yes we do face a few potential uncertain few years.
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Post by khampson on Aug 5, 2017 9:41:27 GMT
I've looked at this in the past too. Don't have all my workings to hand right now, but the £178 monthly repayment equates to £2144 p.a, so quite quickly your initial £10k lump sum is eroded and you've a significantly smaller pot to invest with as the year's go by. Assuming you make 8% return on your investments in year 1 (bearing in mind cash drag etc.), that still drops your starting pot at year 2 to c.£8,600. Most of the gains therefore are made in year 1 and 2 when your 'pot' is still of reasonable size, but you will get ever diminishing returns as the years go on. Years 4 and 5 you are left with c.£4K or less to invest depending on how well your investments have done, and the interest earned from this sum may not even be large enough any more to cover the loan's monthly payments. You will still likely make on the deal over the 5 years, (assuming no big defaults etc) but your sums look a tad on the optimistic side to me, especially as 5 years is a long time in a relatively unproven industry, with quite a few dark clouds already looming on the economic horizon. Appreciate that littonowl, yes my calculations were based on being fully invested on day 1, this can happen by using Assetz capital, Ratesetter, or growthstreet but would certainly impact on the initial figures I quoted, it may take 3 moths to reach 9.25%, you are also correct on an economic downturn we are in dark environment but I do this this could be reduced by carefully selecting platforms, Zopa went through an economic downturn and came out relatively undamaged, I think diversification is the key over a number of platforms, but yes we do face a few potential uncertain few years. thats ok these were just an example, I do not use unbolted, I just put it in as an example sorry about that, So Santander said the loan could not be used for investment so they put your money straight into your 123 account and you instantly get 1.5% is that classed as potential investing? I will need to look into that before I act, I regard buying a house as an investment, I also bought a car as an investment that has increased year on year, this is now turning into a grey area
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littonowl
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Post by littonowl on Aug 5, 2017 10:13:33 GMT
Appreciate that littonowl, yes my calculations were based on being fully invested on day 1, this can happen by using Assetz capital, Ratesetter, or growthstreet but would certainly impact on the initial figures I quoted, it may take 3 moths to reach 9.25%, you are also correct on an economic downturn we are in dark environment but I do this this could be reduced by carefully selecting platforms, Zopa went through an economic downturn and came out relatively undamaged, I think diversification is the key over a number of platforms, but yes we do face a few potential uncertain few years. thats ok these were just an example, I do not use unbolted, I just put it in as an example sorry about that, So Santander said the loan could not be used for investment so they put your money straight into your 123 account and you instantly get 1.5% is that classed as potential investing? I will need to look into that before I act, I regard buying a house as an investment, I also bought a car as an investment that has increased year on year, this is now turning into a grey area Think it was Santander, but not 100% sure. But yes, I think if push came to shove, you could easily 'prove' you'd used the money for something else, it wasn't something I was particularly concerned about. What put me off more was the fact in the final year I'd be more than likely earning significantly less in interest than the monthly loan payments, and didn't think I'd particularly enjoy that. I appreciate overall you're still likely to come out on top, but that's presuming you aren't just left with some problem loans by year 5.
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archie
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Post by archie on Aug 5, 2017 11:21:54 GMT
Neither a borrower nor a lender be. One out of two isn't bad.  |
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fp
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Post by fp on Aug 5, 2017 11:42:12 GMT
Personally I would put the money aside on a weekly / monthly basis, this means you're only gambling what you can afford to lose, and if things take a turn for the worst, you can stop paying in, and make attempts to draw down your money / wait for recovery.... but at least you wont owe anyone a penny, apart from maybe HMRC
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jj
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Post by jj on Aug 5, 2017 17:36:15 GMT
I took out a £8000 loan and invested in P2P like you are planning but I did it for slightly different reasons.
I needed the money to Fill up my ISA or I would lose it forever.
I took it out over one year period thus halving the interest payments i.e. 3.4% 1.7%.
The biggest problem has been cash drag, as mentioned before by others.
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