RATESETTER: PEERTO-PEER LENDING
What is it?
RateSetter is a P2P (peer-to-peer) lender enabling you to invest in fixed income, earning higher rates than those available through banks.
How does it work?
RateSetter’s online platform matches investors (lenders) with creditworthy borrowers. Investors can start with $10 and lending terms are a month, a year, three years and five years. Interest rates are set by lenders and borrowers and are based on the supply and demand for funds at different rates. Your money may be matched with a single loan or multiple loans. You’ll generally receive interest monthly and you can access cleared funds in your holding account at any time.
What are the pros?
Higher interest rates than those available from bank accounts and term deposits. Advertised rates at the time of writing were 3.7% for a month, 4.6% for a year, 7.6% for three years and 9% for five years. All are after fees.
A provision fund, paid for by borrowers, to help protect lenders in the advent of default by a borrower. RateSetter stresses that this isn’t a guarantee or insurance product.
Easy-to-use website providing clear, up-to-date information about your investment.
Flexible lending options that allow you to have payments received reinvested automatically.
What are the cons?
If a borrower pays late or defaults, you may suffer a financial loss.
In the one-month and one-year markets, your funds may need to remain on loan to a borrower beyond the indicative term if there aren’t sufficient lender funds to replace your funds.
Your deposit isn’t protected by the $250,000 federal government guarantee that is available for deposits in banks and other institutions.
No interest is paid on your funds that are in your holding account or on market (see below for more details).
What are the fees involved?
10% of gross interest, deducted before interest allocated to a lender.
A fee equal to any interest generated on cash held for a lender in RateSetter’s trust account.
How has it performed?
RateSetter UK was the first P2P lender to introduce a provision fund globally to provide a buffer against poorly performing loans. To date, in both the UK and Australia every investor has received all the principal and interest due to them, according to RateSetter.
How safe is it?
The UK RateSetter group has been operating since 2009 and is a leading P2P lender globally. RateSetter was established in Australia in 2012 as an independent company and launched to the public, including retail investors, in November 2014. RateSetter holds an Australian financial services licence and is regulated by ASIC.
If RateSetter becomes insolvent or goes into administration the loan contracts made with borrowers would still be legally valid and borrowers would be required to continue to make any scheduled payments to you.
How do I get started?
Register on the website, ratesetter.com. au, read the PDS and apply to become a member. Once you are accepted, transfer funds into your holding account by bank transfer, debit card regular lender instruction or standing order.
To lend this money you make an order, specifying how much, in what market and at what rate. How long it takes varies from seconds to days, depending mainly on the loan size, interest rate specified and demand from borrowers. You can access your account any time on the website. It shows your balances in the following categories:
holding account – funds waiting to be lent to borrowers or withdrawn by you.
on market – funds allocated to orders made by you but yet to be lent.
on loan – funds currently on loan to a borrower/ borrowers.
The “your lending” section summarises your transactions. You don’t earn interest until your funds have been recorded as “on loan”. You can change or cancel your order up until it’s matched to a loan/loans. Once your borrower/borrowers start to repay the loan RateSetter allocates the interest and principal components to you and/or other lenders who have funded the loan. A borrower may make additional payments or repay their loan early and the funds received will be allocated to the lender/lenders.
You can elect to automatically reinvest payments received. You can withdraw cleared funds in your holding account at any time (the minimum is $1).