Thursday 28 February 2019

First user experiences of RateSetter

RateSetter is the third Peer to Peer platform I’ve now signed up for and am actively investing on.  This blog focuses on my experiences on the sign up process and first impressions on using the site. 

The sign up process was straight forward and could be completed in minutes.  You enter all the usual details, be sure to have your tax file number and drivers license handy as part of the process.  Interestingly you didn’t need to verify your email in the process so make sure you type it in correctly.

Once you have completed the sign up progress steps you are logged into the platform.  However it does come up with the note stating that your membership application is currently under consideration and that it should take one business day to confirm.  I registered on a Saturday morning, it wasn’t until Monday until my account was fully active and available to use.  While you are waiting for the application to be accepted, you cannot add any funds to your RateSetter account.

While waiting for approval you can still access everything on the website giving you an opportunity to get familiar with the platform.  The site also provided a user guide you download and refer to on how to use the site.  While the site is not hard to navigate there are a few little things which make me feel like the user interface is not as refined as it could be.  One that stood out to me is that in trying to looking at the detail behind your current investments, you have to go through multiple pages to get to them. 

Transferring money in is easy with a BPay code for your account or you could use a POLi bank transfer.  I’ve always stuck with the BPay given I can save the transaction in my Bank account to make it easier later on, but that is just my personal preference.  Once the money hits your account you are ready to loan.  RateSetter currently have five different markets you can loan your money in that have varying rates of return, 1 month, 3 year, 5 year, National Clean Energy and SA Renewable Energy.

Looking at the historical trends the 5 year market has the best rate of return.  As the money I’ve invested is for the future, I am targeting the longer term strategy and will be focusing on the 5 year market.

I found the market place a little strange.  I personally don’t like the fact that you have no visibility of the loans you are investing and don’t even know how many different loans you may be invested into and whether they are secured or unsecured.  The other thing about the platform I found strange is that you don’t get a premium for investing in an unsecured loan which would typically attract a higher borrower interest rate. 

To place an order you can either select one of their suggested interest rates (designed to get your money matched to a loan quickly) or pick your own rate.  Before picking your own rate you can review how much money is on the market and at what rates people have requested.  I decided to pick my own rate, in fact I split my money out over several rates all 0.1% apart.  I did this for two reasons. Firstly, I was curious how quickly the funds would get matched. Second was to try and create my own loan diversification.  My logic behind this is that if loans were being matched at different times it would indicate they were potentially allocated to a different loan, thus giving me diversification. 

What I found is that the higher percentage rates were still not matched after two weeks on the platform.  The reason for this is anyone can go and put in an offer to lend money at a lower interest rate thus jumping the queue in the fund matching process.  Having sat there for two weeks now I’ve lowered my rate to get them onto the market.  Once the funds are matched you sit back and receive principle and interest repayments over the 5 years (or whichever term) you chose to invest in.

There is an auto invest function that allows the system to reinvest your repayments when they come in (minimum reinvestment amount is $10).  While I like this function, what I notice is that it automatically drops it at the suggested lowest rate to loan quickly.  From my initial observation this could be up to 0.6% lower than if you were prepared to wait a day.  You can also choose to set you reinvestment rate but given it’s a fluctuating market I am reluctant to do this as you may be setting it too high (not going to match) or too low and leaving % return on the table.  Given my plan for maximum returns, I plan to manage my reinvestment manually at this stage.

The other significant feature of RateSetter is the provision fund which is designed to reimburse investors from potential defaults.  While it’s not guaranteed, the website does claim that to date in Australia no investors have lost any capital or interested owed to them.  While I think this is a great feature I feel this is at the detriment to potential returns.  The fund is paid for by borrowers contributing to it instead of the interest going to you.  However, given the lack of visibility of the loans I’m investing into, maybe the provision fund is a good thing on this platform.

There is a feature that allows you to access your remaining capital early on the 3 and 5 year loan terms.  Having a quick look, you enter how much money you would like access to and click to get a quote on how much it will cost.  There are two fees involved, the difference in cost of funding and 3% of the total as a “facilitation” fee.  To me this seems high given you would lose a fair amount of a years’ worth of interest just on the 3% fee. 

These are just my first impressions of the using RateSetter having only spent the last two weeks becoming familiar with the platform and learning how to get most out of it.  If you do have feedback would like to share your own experiences, I’d interested to hear them.

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