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Get a $25 cash bonus to your account when you invest $100 or more into a RateSetter investment fund. T&Cs apply.
RateSetter is a peer-to-peer lender that connects investors with borrowers. While borrowers enjoy competitive interest rates and fees, investors seek out a higher return on their money than what they might normally get with a traditional banking product.
When you invest with RateSetter, you decide on a target rate that suits you, the amount that you wish to invest and the loan term. You’re then paired up with a portfolio of borrower loans that match your preferences. Read on to find out if this investment option is right for you.
RateSetter was founded in the UK in 2009 and launched operations in Australia in 2014. Today it’s recognised as Australia’s biggest P2P lender with more than 18,000 registered investors and over $600 million in generated loans.
While there are a number of P2P lenders offering loans in Australia, RateSetter is one of the few that offers products to everyday investors, not just sophisticated "wholesale" investors.
P2P investing is sometimes seen as an alternative to savings accounts and term deposits, but it is quite different. P2P lending platforms like RateSetter are not banks and their products are classified as a managed investment product by the corporate watchdog ASIC.
While P2P investing can deliver higher returns than what you might receive from the bank, there are risks to consider, such as potential losses from borrower default. To offset this risk, RateSetter conducts creditworthiness tests and has an additional buffer in the form of its Provision Fund. RateSetter says all investors have, to date, received 100% of their principal and interest payments.
When you invest with RateSetter you’re lending to borrowers that are looking to take out a loan at a competitive rate. As a lender, you’re aiming to get matched to one or several loans that offer a high interest return, while borrowers are seeking to get the lowest rate possible.
The displayed market rate adjusts depending on the supply and demand of loans in RateSetter’s marketplace and represents the most competitive investment rate on the day as well as the rate that will get matched most rapidly. For example, if there are more borrowers than investors, rates may increase, and vice versa. To invest with RateSetter you must be at least 18 years of age and have an Australian bank account. Individuals, companies, SMSFs and trusts can invest with RateSetter. Steps to invest:
1. Open an account. This is relatively simple. You need to provide your name, age, address, tax file number and proof of ID. It should take no more than a couple of hours for your details to get approved. You’ll then need to login and read the product disclosure statement to see your list of investment options.
2. Transfer funds. Before you start investing you’ll need to transfer funds to your RateSetter account. You can do this using either BPay or a bank transfer.
3. Select your investment option. There are five investment options to choose from, all five provide monthly payments:
4. Enter your investment amount. You’ll need to enter the amount that you wish to lend. This may be as little as $10 and there is no maximum investment amount.
5. Select your rate. You may choose the most competitive (market) rate on the day or, if you think rates will go up, you can enter your own rate and wait to be matched.
Lender orders are paired with borrower loans automatically by RateSetter depending on term length and the market the investor has chosen to invest in. Lending orders at lower rates are matched first, similar to bidding for shares in a sharemarket.
Investors may be matched with just one loan, but you're typically matched with a portfolio of many loans. Unlike some other P2P platforms, you don’t have a choice in the risk profile of the loans you’re investing in, as this is also managed by RateSetter.
Once you’ve been matched, you get an overview of the number of loans and the repayment profiles in your portfolio.
RateSetter’s rates fluctuate depending on borrower demand and investor supply. It’s up to you to decide whether the rate is the best you can expect in the short-term.
After selecting your investment choice, you’ll be given the option of the two most competitive rates on the day. If you choose one of these rates, you'll be matched most rapidly, typically within a couple of hours.
The other option is to select a higher rate of your own choosing if you think rates will go up. The downside of this is it’s difficult to predict how long you’ll need to wait until a loan match is found, plus there’s the risk of losing out on a good rate if they start going down.
For example, if the market rate has never reached 20%, you’re unlikely to paired to a 20% loan in the near future. If not enough borrowers are willing to take out a loan with an interest rate matching what you’ve selected, it could take weeks, months or longer. To get a better idea of the kind of rates you might expect, you have the option of browsing through the rate history.
Disclaimer: Investments made through a P2P lending platform are not protected and are subject to risks including credit risk (defaults) and liquidity risk. These investments are not subject to review by the Australian Financial Complaints Authority. Actual returns may vary from the Expected Returns declared by the Providers. Read the PDS for details before investing and consider your own circumstances, or get advice, before investing.
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