Disclaimer: I currently invest with Plenti Peer to Peer lending, but I am a novice and am still figuring this out for myself. New users can get themselves a $50 sign up bonus with this code when they deposit and lend at least $1000 into the one month rolling investment option.
Plenti (RateSetter) is a peer to peer lending platform which lets investors lend their money to borrowers, according to an interest rate set by the lender. Borrowers then make monthly repayments (principle plus interest) which are credited back to the lenders account. Lenders can chose how much they want to loan, the rate they want to charge, and the time-frame they want to lend the money for. I wrote this article before they changed their name to Plenti, so just bear with me as I edit the article and use the names interchangably.
How I started using Plenti (RateSetter)
I was referred to RateSetter by a friend who has been using the platform for several years. She has used RateSetter as an alternative to term deposits in a bank (due to banks woeful interest rates), as a form of fixed interest investment. I won’t go into asset allocation here, but depending on your personal circumstances a small investment in fixed interest is usually a smart move.
I used her referral code and got a $100 sign up bonus when I signed up and deposited $1000 into the program. I’m still getting used to how the system fully works but this is an awesome ongoing experiment I am doing in order to diversify my income sources.
The details of Plenti (RateSetter)
“To create an online marketplace which provides a straightforward and secure peer-to-peer investing facility to match Borrowers and Investors. We are seeking to change the way people think about Investing and Borrowing.”RateSetter.com.au
RateSetter was created in 2009 in the United Kingdom, and is the worlds largest Peer to Peer (P2P) Lending platform. To date, globally, they have serviced over 520,000 loans and have managed over $5 Billon worth of loans. In Australia alone, RateSetter has over 18,000 registered investors and brokered over $600 million in generated loans.
The majority of their loans go out to individuals (69%), with the remaining 29% going to property developers and 2% to businesses. As such, the overwhelming majority of these loans are unsecured consumer or personal loans.
RateSetter works by matching investors with borrowers. Investors are able to choose which type of loan market they want to invest in, how much they want to invest, and what rate they are willing to accept. RateSetter calls this a ‘lending order’.
RateSetter then matches this lending order with qualified borrowers (borrowers who have met their credit requirements), with the lowest rate lending orders being matched first. This means that investors return on investment is ultimately a floating or market rate determination.
Investors don’t need to manually approve individual loans, and as such their lending order may be matched to one or several borrowers, across multiple loans.
As the borrower repays their loan, the principle and interest are credited to the lenders account. There are options for automatic reinvestment into the original lending order, which enables you to benefit from the compounding effect of the interest repayments. Otherwise you can select to withdraw the repayments into your nominated bank account, just like receiving a dividend or monthly interest from your savings account.
The Plenti (RateSetter) Provision fund
RateSetter consider themselves responsible underwriters; they have strict criteria for loan eligibility as the first line of defense. However, if a borrower misses a monthly repayment or defaults on their loan, lenders may have their investments protected by the provision fund.
In Australia, RateSetter’s provision fund currently holds over $11.5 Million, which currently represents about 6% of outstanding loans, and an estimated 162% coverage protection against suspected loan defaults.
As a first point of call, RateSetter will refer the failed loan to their debt collection agency to secure the missed payment or recover the default. Should this fail, investors may have access to reimbursement of their capital and/or interest from the provision fund.
This is an important aspect, because the majority of RateSetters loans are unsecured; debt collectors might find themselves with nothing to repossess!
Performance of Plenti (RateSetter)
RateSetter currently provides a return of about 5.5%, which is more than is currently being offered with banks savings accounts or even their term deposits. This is somewhat comparable to interests in the long term fixed interest (bond) market.
Its important to note that the 1 month rolling returns are a market rate and as investors gradually enter into the system, this will likely continue to trend downward – unless there is an increase in eligible borrowers that meets or exceeds this influx. You need to check out the Website www.RateSetter.com for the latest yield figures.
How Risky is Plenti (RateSetter)
With over 1500 positive online reviews, multiple awards and their provisional fund, my personal opinion is that it is probably one of the safer P2P lending platforms. However, like any investment, you have to realise that your capital is at risk, and you could possibly lose it all.
RateSetter have a four pronged approach to reducing risk;
- They have strict eligibility criteria about who they loan to
- They have access to a specialist debt collection agency to help retrieve missed payments or defaulted loans
- If the debt collectors fail, they have a large provision fund with the intent to protect lenders
- They undergo strict financial services audits every year to maintain their Australian financial services licence (AFSL) and Australian credit licence (ACL).
Despite their word about how they screen borrowers, loans can be both secured or unsecured, and investors have no option to choose between these types. The Provision fund is not an insurance product, and basically they will make a decision if you get repaid or not and you will have no way to challenge or redress this decision – investor beware.
My personal opinion is that it is all good while the system is working properly and everyone plays the game, but I just don’t know enough to comment what might happen if it all starts to go wrong and enough people start defaulting.
I am willing to invest a thousand for now which is a small percentage of my net worth, and as I gain more trust in the system and see returns its likely I will increase this amount.
You could lose your money – There is no guarantee, insurance or government protection that you will get any of your money back or be paid any of the interest on your lending order agreement.
Missed payment or default – If any of the borrowers that make up your loan miss a payment or default, this could reduce the performance of your lending order. There is no guarantee RateSetter will reimburse you or make up the difference, although they suggest they might.
Market interest rates could rise – If the number of borrowers exceeds the number of lenders, the market rate could rise. If you have set a fixed time period on your lending order, you could get stuck underperforming the market for the duration of your lending order.
- Your funds might be locked up – Withdrawing your capital early might not be available and your application to withdraw might be rejected by RateSetter, who need to find another lender to ‘take-over’ your loan. Furthermore, during a ‘run’ on RateSetter such as spooked investors in a crash, your funds may be frozen.
How much do Plenti (RateSetter) charge?
RateSetter charge a pretty hefty service fee, equal to 10% of the total interest received. This means on a standard 1 month floating loan rate of 5.5%, your RateSetter investor fee will be .55%, or 55 basis points.
This is pretty hefty when compared to other money markets, but given the higher rates of return, simplicity of the process and protection of the provision fund, I think its reasonable.
There are no account keeping fees, and the minimum investment amount is $10, meaning there is practically zero entry barrier for someone wishing to learn more about finance and investing.
How to use Plenti (RateSetter)
Signing up to RateSetter is pretty easy, no more tedious than a standard bank account. It is a three stage process;
- Sign up to an online account and verify your identity
- Transfer in the amount you wish to invest
- Become familiar with the system and set your lending order
- Withdrawing your earnings
Signing up to Plenti (RateSetter)
Signing up to RateSetter is pretty simple, and takes less than 5 minutes. Just follow the bouncing ball and then verify your identify online.
Transferring money to Plenti (RateSetter)
Transferring money to RateSetter is as easy as completing an online bank transfer or BPAY into your RateSetter account. The money usually arrives within the next business day or two, and you will then be ready to set up a lending order. I chose to initially BPAY $1001 into the fund and have been choosing the rolling 1 month reinvestment market.
Choosing your Plenti (RateSetter) lending order
Setting up a lending order means selecting a lending market, setting a rate and waiting to get matched with eligible borrowers. The lending orders will get filled from lowest to highest, so essentially the lowest rate loans will fill first. This floating order ensures ‘market rate’ is paid.
If there are too many investors, this will usually drive down the market rate and lower investor returns – good news for borrowers eh?
Setting up your Plenti (RateSetter)lending order
Setting up my lending order literally took 30 seconds; I’ll show you here in four screen shots.
Step 1: Log in to your Plenti (RateSetter) Member dashboard (I use the beta interface)
Log into your RateSetter member area dashboard, and check your account total (top left) to make sure you have available funds. If you havent got any available funds click the ‘transfer funds’ in the top right to get details (account details and BSB or a BPAY number) to put money in. Click the ‘Invest now’ Button on the top or on the bottom right.
Step 2: Select your chosen Plenti (RateSetter) lending order
Once you click ‘Invest now’ the page will defaut to the 1 month rolling lending order. As you can see here, my rate is 3.3% – this fluctuates depending on whats available in the market at the time. You simply then Enter your investment amount (minimum $10) and click ‘Next’
Step 3: Confirm your RateSetter lending order to list it on market
This screen is just to make sure your happy with everything before your lending order goes life. Make sure you have read the Terms and Conditions and Product Disclosure Statement before you click accept. I read them ages ago and am happy with how it all went, so I was happy to proceed.
Step 4: Wait for your Plenti (RateSetter) lending order to go on loan
Once your RateSetter lending order is on market, it then gets matched to borrowers. This process can take a while, and whilst it is ‘on market’ it isn’t earning any interest. Ideally you want it to go on loan as soon as possible! Once you get to this stage though, you just sit back and relax.
Step 5: Editing your Plenti (RateSetter) lending order so it gets matched quicker
If you really want your order to fill quicker, just like buying shares you can fiddle with the price – lowering the rate you will accept means you will be at the ‘top of the cue’ to be matched to a loan. You will get a lower return on your investment, but it will start earning you money quicker. See pictures below – unfortunately you cant use Beta mode for this and have to switch to classic view!
Withdrawing your earnings from Plenti (RateSetter)
After your lending order has been matched and once your loan period has elapsed, your account will be credited with the appropriate interest plus your original capital back.
You can choose to either reinvest this back into your lending order for a ‘floating order’ (month-to-month) or simply transfer this back out to your nominated bank account.
Just make sure to keep detailed records of all transactions, because…
Do I have to pay tax on earnings from Plenti (RateSetter)?
Yes! You have to pay tax on interest you have earned from RateSetter, which is classified as income for the purposes of Australia’s marginal income tax system.
In this regard, income from your lending orders is treated no differently to that earned from a PAY-G slip, dividends, bank interest or rental income.
RateSetter do charge a service fee, but do not withhold tax, so it’s important that you retain detailed records to complete your annual tax return, and tuck away an appropriate amount of your profits (equal to your estimated marginal tax contributions) so you don’t get any unexpected suprises after lodging.
I got involved with Plenti (RateSetter)as it peaked my interest when I kept reading about it online. As you would all know, I am a big proponent of 100% equities or as close to it as you can get, especially in the accumulation or working phase of your journey to Financial Independence.
However, cash and fixed interest does have its place in a portfolio. I always keep a few thousand dollars of cash as an emergency fund, and when I retire I plan to keep around 5% of my portfolio or about a year in cash and fixed interest securities to smooth the effect of volatility and protect my dividend portfolio from having to be sold down during a market crash.
Within this 5%, I expect to diversify this cash between bank high interest savings accounts, term deposits, P2P lending (RateSetter) and maybe even a bond index fund (ughhhh).
I plan to continue P2P lending through RateSetter and exploring and learning how this system works so I know just how much I can rely on it during my retirement phase. If you sign up through the affiliate link you’ll get a bonus sign up of $50 which nicely boosts that first months return!
As with any financial product, always do your own research to see if its appropriate to your individual circumstances, and check out as much as you can about them online. Check out this MoneyMag review of RateSetter here
Make sure you read the bloody Product Disclosure Statement before investing a cent!
Get Financial Independence !
Disclaimer: I use RateSetter as a fixed interest security and way to diversify my passive income. You can Sign up to RateSetter using this affiliate code and earn $50 sign up bonus if you make a deposit of at least $1000 and invest it for one month