Recommended reading: independent review of investing with RateSetter
RateSetter regularly gets positive reviews and is often covered in the national and financial media, but a recent review by 4th Way caught my eye. This independent review, by the world's first research agency for P2P lending, is particularly well researched and provides a very good insight into how investing with RateSetter works. The review looks at all aspects of investing with RateSetter including risk, return and access to money and is has useful information for new and existing investors.
4th Way’s overall conclusion is emphatic:
“If I had to choose one peer-to-peer lending platform that everyone with savings must put money into, I think it would be RateSetter. It's well established, has an excellent record … a large reserve fund, incredible diversification, and bad luck from bad debts is eliminated because all lenders get the same return.”
Other sections of the review that stand out are as follows:
Diversification of risk
“The most startling feature RateSetter has is that it spreads all lenders' risk across all its outstanding loans, which number in the hundreds of thousands. I can't emphasise enough how valuable that is. It means there's no risk that you'll lose money through pure bad luck.
That paragraph is worth reading twice, because it's easy to overlook the importance – and power – of spreading your money around.”
The Provision Fund
“Lenders are also protected by a large reserve fund, which RateSetter calls the Provision Fund. It's worth £36 million and includes amounts due to be paid in from existing borrowers. It's the equivalent of 4.2% of RateSetter's outstanding loan book and it's more than the forecast future bad debts. It's gained size to keep pace with the changing mix of loans, so its future looks bright and solid.
As a result of the reserve fund, none of RateSetter's current 83,000 lenders, nor its past lenders, have lost a penny. And all have earned every penny of interest that they expected to.”
Liquidity (access to money)
“So far, [RateSetter] has a record of allowing lenders to exit early in an average time of one day. This means lenders who need their money back have rapidly sold their loans to other lenders. As with all peer-to-peer lending platforms, there will be times when lenders have to wait for a sale or for borrowers to repay their loans naturally. But RateSetter's record is excellent.”
You can read the review in full here.