Peer to peer: pair à pair
Credit score: score de crédit
Collateral: garantie colatérale
Saving account: compte d'épargne
Mortage: hypothèque (immobilier)
SEC: Security and Exchange Commission (Commission de régulation des opération boursières américaine)
bn: abréviation de billion (milliard au sens de 1000 x 1000 x 1000 = 10^9)
Credit default: défaut de paiement
Outstanding: en cours
Proprietary: en propre
Peer to peer lending
The peer to peer lending activity consists for individuals to lend and borrow money to and from other inviduals against interests through a peer to peer fund. Peer to peer lending and borrowing is actually competitive.As with all financial market, the risk determines the spread between borrowing and lending rates. The return for the lender is higher than from a bank while the borrower obtains money for as low as 3 to 5%. Although, it may go as high as 20% to cover the risk.
Important points discussed during the interview:
- The loans are not backed up by a collateral such as a mortage.
- Rates vary from day to day according to demand and supply.
- Different from person to person lending and borrowing, the moneyis funneled through a fund and the risk spread over thousands of loans.
- The interviewed investor testifies that his returns are higher than with a regular bank savings account.
- PPL is a new activity; Therefore, there is not much history to look back at to determine the loan default rate.
- £600 million were invested in PPL in the last year
- The PPL activity is not regulated. It will be by April, which may affect the returns because of red tape.
- 3 major PPL lending companies operate in the UK.
Other sources of information
Peer to peer i...
... middle of paper ...
...iced prices of 6 to 20%. But, in the end, it is difficult to make up one's mind on the advantages of this system. At no time was a credit score spoken of. The credit score is a figure that sums up the risk of lending. The competing interest rates cannot be compared if they don't refer to the exact same risk.
Two other variables enter the interest rate determination: The amount borrowed and its duration. In order to compare objectively the rates with one another, only one of the three variables must be allowed to fluctuate. Because they use a proprietary credit risk evaluation method, it is quite difficult to determine which of traditional financing methods or P2P is the most advantageous.
Therefore, neither a borrower, whether an investor or a consumer, nor a lender can rationally make up their minds on which method to use given the limited information provided.
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