WDFC, the firm behind Wonga.com, have launched a new peer-to-peer platform in the form of Invest and Borrow.
From an investor standpoint, as you might perhaps expect, it’s a rather handsome proposition. The platform will essentially guarantee an AER of 7.23%. Unlike Zopa and RateSetter, you needn’t invest your cash for a pre-specified period of time. Obviously, the platform will first and foremost seek to match lenders with borrowers who will repay loans on time. Failing that, information on Invest and Borrow’s website suggests that lenders whose loans default will be compensated with their initial principle and the interest that would have been earned up to the beginning of that month. Invest and Borrow will then reinvest the lender’s money so that it can start earning again.
How is the platform able make such a guarantee? It could be something to do with the rate that borrowers are charged – as highlighted in the platform’s “representative example” of a 5 month loan – the APR is a towering 75%. Now to qualify that figure a little, the loans on offer via the platform will range from £100 to £2,000, over terms of 3 to 6 months. So the actual amount of cash being generated by even so high an APR still won’t amount to much. One might expect to see a higher APR on a shorter term, smaller loan – given the fixed, unit cost nature of many of the expenditures associated with lending. Having said that, there is a sizable gulf between what’s paid out to investors (7.23%) and what the platform’s borrowers will pay (75% APR representative).
Invest and Borrow makes no secret of the rate that borrowers will have to pay should they take out a loan via the platform. The words “Representative 75% APR” are plastered all over the site. This is a new territory for the P2P sector. Invest and Borrow’s target borrower is very different in terms of credit quality to those who borrow from the two market leading platforms – Zopa and RateSetter – which typically fund individuals at APRs of less than 10%. Invest and Borrow appears to have identified a gap in the P2P marketplace. Whether the platform brings with it the controversy that has plagued ‘payday’ lenders in recent months remains to be seen.