RateSetter recently held a webinar for investors. I took the opportunity to dial in to see if I could learn anything new about the platform. The majority of the webinar went through the basics on how to make an investment on the platform. In addition to this, there were a few points about the provision fund that I learnt which I will share below. Furthermore, RateSetter presently are offering a referral offer where both parties can get a bonus $75 dollars. If you want to access this offer, click here*
While I thought I fully understood the provision fund, the Webinar taught me a few extra details about how the fund works. The provision fund is designed to cover investors in the event of a loan default. This pool of money is acquired through a risk assurance charge that every borrower pays when they take out a loan through RateSetter. A higher risk borrower pays a larger risk assurance charge into the provision fund. What I didn’t realise is that the provision fund (providing it is satisfactorily funded) will kick in automatically to cover both late payments and defaults to ensure the investor gets the returns on time.
At the time of writing this article the provision fund has $13.9 million verses an estimated bad debt of $8.9 million giving a coverage ratio of 156%. Latest provision fund stats are available at this link. While the coverage ratio is above 100%, defaults and late loan payments will be automatically covered out of the provision fund.
Early access to funds in the 3 and 5 year lending markets become available a few months ago at a cost of 3%. During the webinar it was highlighted that the fees have now been reduced to 1.5% which is a step in the right direction. While I recommend you don’t take your funds out due to the fees reducing the returns you have received, I understand that unexpected things can come up.