Funding circle review - can i make money using peer to peer lending?

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  1. admin

    admin Administrator Staff Member

    Admin Post
    I’m really starting to enjoy Funding Circle and I am really beginning to see the potential of the business model. In this Post I will post my personal experience on the site which will include a Funding Circle review, I will also share an exact method to make money quickly.

    If you really like the idea of peer to peer lending then one of the best sites in the UK is Funding Circle, other sites like Ratesetter.com and Zopa.com are worthy alternatives however Funding Circle is being supported by the UK government which makes it an altogether more attractive proposition. Peer to peer lending is also sometimes referred to as People to people lending, P2P lending and social lending.

    How Does Funding Circle Work?

    Funding Circle works by connecting businesses with investors, the businesses requests investments and publish their credentials along with credit score and investors bid in an auction like style to invest in the company or buy loan parts. The British Government is also now lending to British businesses along side social lenders. Investors can expect a return of 6.2% on average after taking into account loss rates and charges; this means that if you invest £10,000 you can expect a return of £620. The amount of loans funded so far exceed £103 million.

    How Can I Make Money on Funding Circle?

    It’s very easy to get started with Funding Circle, you can register and transfer money you want to invest in 10 minutes, you can start investing in loan parts from as little as £100 to find your feet. It’s really import to read all the guides the site offers which is very comprehensive, by reading the guides you get a far better idea of what the pit falls are and how you can avoid them. In particular it’s important to read the guides on risk and diversification.

    [​IMG]

    Once you’ve read the guides you can start bidding for loan parts, every investment has a set amount of time to get all the money, you get to choose how much return you want from your investment, this could be 10%, is someone else is willing to take 9% your bid will be supplanted and you have to make a bid at 9% or less to buy into the loan part.

    Once you’ve bought into the loan part the investment closes and your paid interest every month on the loan parts you hold. If you hold £10,000 and the average return on your holdings are 6.2% then you can expect to get £51 per month return which is very respectable compared to what’s on offer from the bank.

    Exact Method to Start Making Money Quickly
    Risk & Diversification


    Any professional lender will tell you that it’s important to keep a close eye on risk and diversify your holding between as many borrowers as you can. You have to know yourself as an investor and determine your tolerance to risk, if your risk averse then you should predominantly invest in low risk businesses, if you want to take a risk then you can go for higher risk business.

    The great thing about Funding Circle is that they have excellent information on all the companies so that you can make a fully informed decision. All the businesses are assessed and their credit history and accounts are checked and published for all to see. The risk bands go from A rated which is low risk to E Rated which is high risk.

    My plan is to invest £10,000 into 100 loan parts; this would mean that I would eventually invest £100 into 100 businesses which would diversify my risk. I would also only invest in A rated companies where I could expect a return of 6% to 8%.

    [​IMG]

    I can also take a detailed view on the companies financials on Funding Circle and would only invest in companies which I believe have a future, these would include businesses models which have been proven to make a profit, I also expect both revenue and profits to be rising and only invest in companies that have a credit score of 90 or more.

    Using these filters I will ensure that my losses remain at a minimum and my risk is low and my portfolio is well diversified. It will take a while to lend out £10,000 however if I can maintain the quality standards I should be able to find 100 quality companies in a year.

    Compounding Effect

    I will also reinvest my profits back into lending to fully take advantage of the compounding effect, as soon as my interest or profit is returned to me I will start looking to invest in companies using the above criterion.

    If I can’t find companies then I can look at buying loan parts from other people, usually loan parts come with a premium or a discount depending on how quickly the loan part owner is willing to sell, there are many loan parts which have 0% premium which means that your buying the loan part for what you would have paid anyway. If you have a target of 6% and want to buy a loan part with an 8% return and 2% premium then this will still fit your criteria.

    The compounding effect will really make your income grow especially if you can reinvest the money as soon as it comes in without leaving it dormant, if you can reinvest the proceeds and add more to it then you’ll soon accumulate a substantial passive income stream that you can use as income.

    [​IMG]


    How Long Will Funding Circle Last?


    Funding Circle has been through a period of tremendous growth, this is because banks are picky to whom they lend to and businesses are looking to become their own banks. As long as the banks remain picky peer to peer lending should keep on growing. It’s important to remember that there is no guarantee as to how long this business model will last, even though it has the confidence of the British Government it only takes banks to relax lending and lower rates to halt the P2P lending growth.

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    Miles and Simrin like this.
  2. Simrin

    Simrin Newbie

    I like the idea of peer to peer lending but what deters me is there is no protection in place if the company goes bust. If Funding Circle were to cease trading for anomalies in their accounts you would have to wave good bye to your money. I realize you've spread the risk by investing in A rated companies but there is not compensation scheme in place. Recently Trust Buddy which is a peer to peer lending platform in Sweden became bankrupt and many investors including myself have money tied in the company while bankruptcy proceedings progress. Its not a nice feeling. I've now made a decision not to chase yield and instead focus on long term investments such as paying off my mortgage or investing in Certificates of Deposits.
    Miles and admin like this.
  3. admin

    admin Administrator Staff Member

    Admin Post
    Yes, admittedly there is a risk with investing with peer to peer lending company and I too had money invested in Trust Buddy which I suppose I'll have to wave goodbye to too. I only invest a very small percentage of my overall portfolio in high risk investments and I know that out of seven investments I may lose money in one of them. Most of my money is invested in bricks and mortar and solid stocks and mutual funds which means I don't have to worry as much. Trust Buddy has been very disappointing and I only hope another lending company rescues them and restores investor money and confidence.
    Miles likes this.
  4. Miles

    Miles Newbie

    After Trust Buddy scandal left it filing for bankruptcy I withdrew and sold all my exposure to peer to peer investments. This industry is highly unregulated and a lot of dodgy business is probably being permitted. Its only a matter of time before more people lost money on other platform and the government comes down on them like a tonne of bricks. Simrin is right, its better to invest in something solid than to chase yield and risk losing your entire capital. I too had money invested in Trust Buddy who were advertising a minimum of 12%, I guess greed took ever and I invested a small amount and now I've been burnt, a valuable lesson learnt.
  5. MoneyFlux

    MoneyFlux Newbie

    The Trust Buddy bankruptcy has really dented my confidence in peer to peer lending. I decided not to invest in peer to peer because there was no real regulation. I think its a great concept but until the industry is regulated its a very risky proposition. The yield they offer is amazing but you need to consider the risk very carefully. I know a lot of people who invested money in the hope of becoming financially independent and got burned severely. I really hope that Trust Buddy find a buyer who can bail them out so the lenders can be partially rescued.

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