Ratesetter Review – My Unbiased Lender Experiences And Review

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ratesetter review

Ratesetter Review (UK)

** Ratesetter review updated June 2nd 2017 **

Read my comprehensive unbiased Ratesetter review highlighting my investing experiences after more than 2 years as a lender. See why it remains one of my top peer to peer lending choices.

Established in October 2010, Ratesetter is considered by many (myself included) to be one of the safer peer to peer lending options. Its investment options are basic and easy to understand. Ratesetter does require a watchful eye and some hands-on time to achieve the best return rates. Despite the fluctuating rates, I still like Ratesetter.

My June 2017 Allocation: Slightly Reduced
My annual rate of return: 6.0% (After fees but before taxes)
Est. Annual Returns:Up to 6%
My Risk Rating *:
Launched:2010
Early Exit:
Autoinvest:
Provision Fund:
ISA Available:
X
Loan Types:Consumer, property, business
Loan Security:Consumer loans unsecured, property, personal guarantees
Lender Fees:Avg. 1.73% exit fee on 3 & 5 yr products
Min Investment:£10
Avg. Lender Portfolio Size:£21,000
Time to Become Invested:Auto-invest is Instant, manual varies on rate you accept
Time Needed Managing:
Low
Lending Agreements With:Borrowers
FCA Regulation:Interim
Cashback Offer:
£50 cashback when you lend £1,000 for 365 days

* This opinion risk factors in loan types, interest returns, company history, default numbers and my own investing experience. Risk rating explained here.

The Ratesetter Review: What You Need To Know

Pros
  • Safer peer to peer lending option
  • Competitive rates of return
  • Established in 2010; longer operating history than most peer to peer companies
  • Funded by companies such as Woodford and Artemis
  • Loans given to credit worthy borrowers
  • Low default rates
  • Provision fund with interest buffer to cover lenders equally
  • Possible to exit loans early
  • Easy to use
Cons
  • Fluctuating return rates
  • Need to be hands-on to get best returns
  • Exit fees on 1,3 & 5 year loans can be high
  • Provision fund is discretionary
  • Idle money leads to lower returns
  • Some unsecured loans in portfolio
  • Ratesetter has some sneaky secondary market practices (see What Are The Fees section)

Ratesetter isn’t the perfect peer to peer company but it’s a great option nonetheless. Even though Ratesetter hasn’t experienced a severe economic downturn, it remains in my Top 5 Peer To Peer Lending Report and is one of my favourite companies. Read more below in my exclusive Ratesetter review.

Equivalent Competitors

Zopa, Lending Works, Growth Street

Ratesetter’s Company Financials
 31st March 201631st March 2015
Revenue£ 18,458,205 £ 12,571,797
Pretax Profit / (Loss)£ (4,889,658)£ 475,656
Net Assets£ 24,112,287£ 28,122,808

Latest financials taken from Companies House and added for informational purposes. Make of these number what you will.

Ratesetter Review: My experiences so far….

I have been investing in Ratesetter since early 2015. I have a special love for Ratesetter as it took my peer to peer lending virginity without buying me dinner. Ratesetter was the perfect entry point into peer to peer lending as it provided simplicity, safety (in the peer to peer world), a provision fund and a possible exit strategy. Ratesetter continues to be one of my preferred peer to peer lending companies.

What Is A Ratesetter?

Ratesetter is a peer to peer lending company where lenders loan money directly to borrowers via lending terms of either instant access (Rolling rate), one year or up to five years. The Rolling account is invested in a mix of one year and five year loans.

Most borrowing types are personal, commercial and property loans. Property loans make up a small percentage of loans so it’s important to know most loans are unsecured.

Lenders can either choose the current market return rates (auto investing – not recommended) or set their own return rates (recommended). Even though you may actually be lending to a small amount of borrowers, diversification is achieved by all lenders sharing in bad debts equally.

How Can I Contact Ratesetter?

Email: contactus@ratesetter.com
UK Tel: 0203 1426226

When Did Ratesetter Launch?

October 2010

Are They Regulated?

Yes, by the UK Government’s Financial Conduct Authority #633741 under interim permission. FCA regulation is nothing like the FSCS (Financial Services Compensation Scheme), which covers consumers when they deposit money in banks. The FCA does have the ability to pursue criminal action against companies which violates its standards, but the FCA is not a government entity and it’s funded by the very companies it regulates.

How Do I Sign Up?

Click here to sign up for Ratesetter and receive a £50 bonus when you invest £1000+ for 365 days. (For new lenders only. Ratesetter pays me a small referral fee at no expense to you. When you sign up for an account through my website, it allows me to continue to offer new reviews at no cost to you.)

Who Can Open An Account?

Any person 18 years or older who has a UK bank account and can pass the verification check.

What’s The Signup Process Like?

Simple. They run the usual i.d. checks.

What’s The Minimum Deposit / Investment?

Debit card deposit: £10 (£1.50 fee for deposits of less than £1,000)
Bank transfer deposit : No Minimum
Investment into loans: £10 minimum

How Are Deposits Made?

Via bank transfer

Does Ratesetter Offer An Innovative Finance ISA?

Not yet but once Ratesetter becomes a full member of the Financial Conduct Authority, it will be able to offer the new IFISA. I predict this should happen in 2017.

How Much Interest Does Ratesetter Pay Lenders?

Rolling: 2.5% – 4.4%, 1 Year: 3.0% – 4.4%, 5 Year: 4% – 6%

Unfortunately there isn’t a simple answer to this question as there are many variables. Sometimes the return rates make no logical sense. For example in early December 2016, the five year rate was lower than the now defunct three year rate.

As of April 2017, the lending market rate for a five year loan is fluctuating between 5.2% and 6%. When you lend at the five year term, you will receive both capital and interest payments monthly. When you receive your monthly repayment, your money may sit on the open market while it is being re-lent. The time it sits on the market depends on the interest rate you’re willing to accept.

Due to the fluctuation of rates, it’s possible to have money sit idle or in the Rolling Market as you try to obtain reasonable longer term rates. Idle money collecting little or no interest can have a detrimental effect on returns. I would estimate that due to idle money time, you will receive 0.10-0.30% less than advertised rates.

Is Interest Paid Immediately Or When the Loan Starts?

Interest accrues as soon as your money is matched to a loan.

When Is Interest Paid?

Rolling: Capital and interest is paid when you sell out / withdraw.
1 Year: Capital and interest is paid at the end of the term.
5 year: Capital and interest is paid monthly.

Am I Lending To Ratesetter Or The Borrower?

Ratesetter is true peer to peer lending so you’re loaning money directly to borrowers. This is good for lenders.

What Are The Fees?

Ratesetter has exit fees vary depending on what product you are selling, what your interest rates were when you bought the loans, and what the current interest rates are. Estimated sell out fees can be anywhere from 1% to 2.75%.

If you want to estimate the fees, do the following:

Step 1: Click on the Withdraw link inside your account

Ratesetter Review

Step 2: Click on Sellout at the bottom of the screen:

Ratesetter Review

Step 3: Enter desired sellout amounts and fees will be shown:

Ratesetter ReviewYou can see from my example that the fees vary drastically.

On a positive note, the Rolling market account has no exit fee.

Also note that if you choose to exit one, three and five year loans early, there are some sneaky stipulations buried deep within Ratesetter’s Terms & Conditions page (section 9). Ratesetter will offer your loan parts to other lenders if you want to sell out. If a buyer exists and the current interest rate on offer is lower than your achieved rate, Ratesetter keeps the difference in the future accrued interest. If the existing rate is higher than your achieved rate, you are penalized and it comes out of the amount owed to you when sold to another investor.

If you are investing in Ratesetter with a plan on exiting early, you might want to reconsider using Ratesetter due to the costly exit fees. When you also factor in idle money time, you may net less than other companies such as Landbay which have no exit fee.

Ratesetter also charges a £1.50 fee for debit card deposits of less than £1,000.

How Much Time Will I Need To Spend Managing My Investments?

I spend approximately 10 minutes per week using Ratesetter. To earn the best rates, you will need to log on and make sure your reinvestment target rate settings are realistic, otherwise your money will sit idly in your Holding Account earning you zero interest.

If you want Ratesetter to be a completely hands-off product, you can set your reinvestments to be lent at market rates, but beware as your returns will suffer because Ratesetter will lend your money at the lowest supply rates.

How Long Are The Investment Terms?

Rolling (easy access/ no minimum timeframe), one year or five years. The Rolling account invests your money across loans ranging from six months to five years. Any loan can be repaid early by the borrower. This has been frequently occurring since interest rates have dropped as borrowers are refinancing their loans or looking elsewhere for lower rates.

What Security Does Ratesetter Lend Against?

Ratesetter lists its borrowers types as individuals, business / commercial loans and property. Although it doesn’t specifically list each loan, Ratesetter states “Commercial loans include unsecured loans to sole traders and small businesses and secured loans to larger businesses.” I presume most loans are unsecured except for property loans, which make up a relatively small part of Ratesetter’s loan book.

What Are The Loan Default Rates?

Default rates were 2.78% for 2015 and 0.98% for 2016. For 2016, only 0.06% of all loans were. These bad debt rates are very low but expect them to rise if the economy worsens. You can see current statistics here.

What Are The Main Risks?

Company Failure: This is a risk with every peer to peer lending company. If the business model fails, investors could lose all of their investments though it’s more likely they would lose some of their investment. I consider Ratesetter to be one of the safer peer to peer lending companies. Its provision fund, lending criteria and business model funded by investment heavy hitters such as Woodford and Artemis, make company failure is less of a concern.

Economic downturn: Ratesetter has yet to experience a severe downturn in the economy. If a downturn were to occur, Ratesetter might experience higher borrower default rates since most loans are unsecured.

Lowering of underwriting quality: One of Ratesetter’s draws is they lend to high quality borrowers who they consider low risk. There is always a risk that Ratesetter will lower their underwriting standards and defaults will rise.

Is There A Provision Fund?

Yes and its balance is over £22 million. That will buy a few packets of Monster Munch! The provision fund supposedly has enough money to cover defaults by 116% but this fund is discretionary, meaning the Directors decide when and if the fund is used. See the latest number here.

Ratesetter has made some extensive changes to its terms and conditions in regards to how their Provision Fund operates. Ratesetter is now allowed to manage the Provision Fund’s health and size by reducing costs, using future loan funds and interest or reducing lenders interest returns. These changes are designed to keep the fund replenished in times of financial troubles. Some people were understandably unsettled by these changes but I appreciate Ratesetter’s forward thinking to protect lender’s interests. I think these generally good changes will allow Ratesetter to act in times of trouble. For those unhappy with the changes, Ratesetter is allowing lender’s to exit the with no selling fees.

What Happens If Ratesetter Goes Bust?

Ratesetter has an independent trustee in place to ensure lenders loans are handled correctly and to ensure wind down of the company. Since lenders and borrowers are contracted between each other, borrowers would continue (in theory) to make payments to lenders via the trustee.

Honestly if Ratesetter failed (or any peer to peer lending company), there’s no telling whether lenders would get their money back as the wind-down process would be complicated and the administrators fees could be absurd. Let’s hope Ratesetter stays in business.

THUMBS UP FOR RATESETTER:

Safety + Provision Fund

Ratesetter is considered to be one of the safer peer to peer lending companies. Their underwriting team supposedly only loans to high quality borrowers who are in the low risk of default category. The provision fund while not guaranteed, provides an extra layer of safety and is in place to pay lenders in the even of loan defaults or economic downturns.

Ratesetter is well funded and has a longer history dating back to 2010. Many lenders discount the importance of a company being operating correctly and having access to funding, but I consider these to be a important factors.

Lender Return Rates

While the days of 7% interest rates have long passed, when you factor in safety, Ratesetter’s rates are still acceptable. Rates are constantly fluctuating so never use auto invest and always set your own rates. Despite falling rates, the five year term rates are still attractive and have been as high as 6%. Certainly much better than savings bonds or high street bank rates.

Low Default Rates

Default rates that resulted in bad debt for 2015 were only 2.78%. 2016 year to date bad debt rates were 0.98%. Ratesetter claims that no lender has ever lost money.

Secondary Market

Ratesetter offers a way for you to be able to exit your loans early. You select how much you want to sell and Ratesetter shows you how much your exit value will be minus fees. Fees vary depending on what you are trying to sell but through my experimenting, they range from 0.25% – 2.75% although Ratesetter claims the average fee is a little over 1%.

The Rolling market still offers great liquidity and I have been able to sell in seconds. Being able to liquidate existing loans isn’t guaranteed but I believe liquidating during normal economic markets shouldn’t be a problem.

Deposits, Payments & Withdrawals

Use a debit card for instant deposits. Monthly payments have always been on time and withdrawals can be as fast as the same business day.

The Website

It’s very easy to use and looks great. Here is the Portfolio dashboard:

ratesetter review


(Definitely not my Ratesetter balance but I like to dream.)

TIP: Ratesetter makes it tricky to access the page where you can set your own interest rate (purposely?). Here is how you can quickly access this page.

Most pages display the current lending rate box. You can click on the rate term you want to invest in:

Ratesetter Review

You will be taken directly to the investing page where you can set your own rate:

ratesetter 2

THUMBS DOWN FOR RATESETTER:

Fluctuating Interest Rates

Other peer to peer lending sites offer fixed interest rates, which makes reinvesting much easier and less time consuming. Some people like to be hands on with their investing but if that’s not for you, look elsewhere to Landbay.

Many conspiracy theory investors speculate on why Ratesetter’s rates fluctuate so much and how the rates are calculated. No one has a definitive answer as Ratesetter seems to do what it wants to do. Since the Bank Of England interest rate cuts, a massive influx of money has been moving into peer to peer lending, increasing lender demand.

Fluctuating rates can also be caused by investors using the auto lend feature. Auto lend assigns low rates on behalf of these lenders and if there is a large queue of auto-lenders, market rates remain low.

Need To Be Hands On To Get The Best Returns

Your unmatched funds can sit idly by earning you zero if you don’t keep a watchful eye on your account. You can go for the hands-off auto invest option, but you’re likely to receive some horribly low return rates since rates fluctuate by the second. I don’t spend much time on this and thankfully setting target rates only take a few mouse clicks:

ratesetter review

 

ratesetter review

ratesetter review

Exit Fees

I consider Ratesetter a buy and hold investment. If you plan on exiting, the fees can be up to a hefty 2.75%. I recommend Ratesetter as a long term investment to avoid the exit fees. Remember there are no exit fees on the Rolling Market.

Set Your Own Rate Page Not Easy To Find

Ratesetter makes this page rather difficult to access although you can directly access it by clicking on the loan rate box. I’m starting to wonder if Ratesetter made this page purposely difficult to find.

When lenders use auto-lend and are willing to loan money at low rates, Ratesetter can loan money to borrowers at lower rates making them more competitive against other loan companies. See my above tip on how to quickly locate the “set your own rate”.

Unsecured Loans

Most of Ratesetter’s loans are unsecured. Ratesetter only lends to super-prime borrowers, but if Ratesetter decided to lower their underwriting standards, defaults could easily rise. Would it be better for Ratesetter to offer secured loans? Yes of course but it’s not too much of a worry since lenders are mostly taking smaller consumer type loans similar to Zopa.

Idle Money = Lower Returns

Reinvesting payments doesn’t always happen quickly, so when repayments sit idly in your account looking for a home, your returns will always be lower than advertised rates. I’ve calculated my returns to be 0.2% less due to this factor.

No Email Notification When Monthly Payments Are Received

Small negative but an annoyance none the less. Sometimes I forget to log into my account and when I do remember, I find funds sitting in my account doing nothing. The way around this is to look at your loan repayment dates and set yourself a reminder to log in and reinvest.


My Strategy

Starting out I was extremely nervous about peer to peer lending. Ratesetter was the first peer to peer lending site I experimented with. I started out using the monthly term (now called Rolling), which paid 3.5% annually, and I was ecstatic to receive my capital and interest at the end of the first month. I reinvested for the next two months, did some research and spoke with the staff. As I become increasingly more comfortable, I increased my investment and lending term lengths. I proceeded to lend using the three year term at 5.8% and the five year term at 6.6%.

Due to fluctuation interest rates and higher lending demand, patience is needed to obtain better returns rates.

Ratesetter Review Conclusion

Ratesetter has been offering peer to peer loans since 2010. Its low default rates and longer history make it one of the safer peer to peer lending options. Ratesetter is a profitable business and it loans to prime borrowers with a lower risk of default. Many consider it to be boring since investment options are basic. In the investment world, boring is good.

Lender return rates have been fluctuating and while it’s occasionally possible to obtain five year rates of 6%+, these times are becoming few and far between. Ratesetter does require some hands-on time to achieve the best returns. Stay away from the low yielding auto-lend option. Most of Ratesetter’s loans are unsecured and the company has yet to be tested by an economic downturn. Despite the downsides, if you are new to the peer to peer lending world, I recommend Ratesetter as a great starting point.


Click here to sign up for Ratesetter and receive a £50 bonus when you invest £1000+ for 365 days. (For new lenders only. Ratesetter pays me a small referral fee at no expense to you. When you sign up for an account through my website, it allows me to continue to offer new reviews at no cost to you.)

If you enjoyed this Ratesetter review and want to know more, click here and receive my complimentary Top 5 Peer to Peer Lending Sites Report.

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Disclaimers: I’m not paid by or employed by any of the companies I write about. In most cases I have invested or continue to invest my own money through these companies. The sign up links on this website are referral links. When you sign up for an account through my website, I receive a referral fee directly from the companies, at no cost to you. Your support enables me to continue to operate the Financial Thing website. You can read more about my referral links here.

** This review is for information purposes only and should not be regarded as investment advice. Opinions expressed in this review are only opinions based from my own personal experiences. As with any financial investment, peer to peer lending involves risks, so never invest more than you can afford to lose. **