The RateSetter Provision Fund.

Protecting your investment

We never forget that we're looking after your money and only invest in loans that will benefit both borrowers and investors. Our experience of lending helps to ensure that RateSetter’s portfolio of loans performs well.

Remember, while your investment is matched to an individual, your investment benefits from the scale and stability of the overall portfolio, currently £850 million. For an added layer of stability, we created the Provision Fund. The Provision Fund has a 100% track record over 9 years ensuring that no investor has lost a penny.

We're really proud of this however this is not a guarantee for the future and your capital and interest are at risk if the Provision Fund is depleted by increased borrower defaults.

How it works

As is normal, people who take out a loan pay interest on the money that they have borrowed. At RateSetter, part of the interest goes to you, the investor, while another part goes directly into the Provision Fund.

The Provision Fund grows along with the portfolio size and repayments made by borrowers. The money that is in the Provision Fund is a buffer to protect your investment. It does this by automatically reimbursing you if a borrower’s payment is missed.

Provision Fund buffer

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The Provision Fund buffer shows the Provision Fund cash and expected future inflows as a % of loans under management at each point in time. Investor returns show the average annualised % return to an investor in the month. Annualised net credit losses show the annualised net credit losses as a rolling six months’ average.

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How we manage the Provision Fund 

We manage the size of the Provision Fund so that there is more money in there than all the expected missed payments by borrowers. We continually monitor the performance of loans and our Provision Fund and if needed we can make adjustments:

  • Underwriting - lending criteria on new loans

  • Portfolio – mix of loan and borrower types

  • Provision Fund – payments made by borrowers into the Provision Fund

  • Loan management – loan life-cycle and collecting missed payments

Thorough arrears management: for the small proportion of borrowers who miss payments, RateSetter’s specialist arrears management team has a 3-step plan designed to help get things back on track:

    • Debt review and affordability analysis to assess borrower's unique situation.
    • Consolidation strategy offered to reduce debt repayments.
    • Repayment plan adjustments to increase likelihood of full repayment.

 

Provision Fund scenarios

 

Key risk indicators

Interest Coverage Ratio: 117%
When the Interest Coverage Ratio is higher than 100% there is enough money in the Provision Fund to ensure that you will earn all the interest that you expected.

Capital Coverage Ratio: 238%
When the Capital Coverage Ratio is higher than 100% there is enough money in the Provision Fund to ensure that you will get back at least as much as you put it in.

The coverage ratios are snapshots in time that assume that RateSetter will make no adjustment to the Provision Fund or the portfolio’s performance in order to keep your investment on track. 
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