Peer-To-Peer Lending – Why I’m Moving From Funding Circle to Ratesetter

In February 2013 I signed up to the three biggest peer-to-peer lending services in the UK. Zopa*, Ratesetter* and Funding Circle.

The concept behind peer-to-peer lending is pretty simple. There are normal people who want to borrow money, and there are normal people who want to invest their money. The peer-to-peer lending platforms simply bring them together.


Back then they were all slightly different. But now Ratesetter* and Zopa* are pretty much the same. As an investor at Zopa or Ratesetter, you get a set percentage return that is guaranteed by an insurance fund. That means that you get the same amount even if some of the people receiving your money default.

Peer-to-peer lending is called that as a reference to the fact that money flowing from normal people to normal people. But in reality, using Zopa* and Ratesetter* feels a lot like your money is just in a savings account. You have a choice of how long to invest for (instant, 1-year or 5-year) and don’t know or have any link to the person receiving the loans.

So far everyone has been paid out and the insurance funds at both are pretty flush, but they are not risk-free. If there is a big enough disaster then money could be lost. Personally, I think the risk is pretty small and the returns offered make it well worth while.

Funding Circle is a bit different. First off you are lending to businesses and not to people. And you are lending to particular businesses that you have chosen. You can look through their prospectuses, financial history and choose on a case by case basis who you lend to.

Here is an example of a loan that is available to fund today:


Funding Circle is a lot more hands-on than the other two. Instead of just putting your money in and leaving it, you need to actively seek out and choose the companies you lend to.

There is also no insurance. So if the company defaults you lose your money. But because of this extra risk, Funding Circle has always offered the highest returns of the three.

And perhaps unsurprisingly Funding Circle used to be my favourite. After working out what was what, I originally split the money I had set aside for peer-to-peer lending roughly 70% in Funding Circle, 20% in Ratesetter* and 10% in Zopa*.

When I wrote my last article about Funding Circle two years ago, I was averaging about 9.5% after fees and bad debt. But since then the rate of bad debt has increased and the offered rates have gone down.

Now my average annual return is just 7.0%, well below their estimated 9.2%. Whereas Ratesetter* has stayed level at about 5.3% and Zopa* is at 4.7%.


Now 7% still sounds pretty great and is quite a bit better than Ratesetter*. But I don’t believe that it is accurate. When I delve into the details of the loans, there a few that are marked as ‘late’ – which are not counted as bad debt and doesn’t go into the equation to work out the 7% – but that quite obviously should be bad debt.

Here’s one.

outstanding-loans-funding-circle peer-to-peer lending

That loan was last paid in July 2015, that’s 18 months ago! If that’s not bad debt I don’t know what is?

And I’m not alone. Over the years I have convinced quite a few friends to sign up to Funding Circle, and they are all also seeing well below estimated return.

The increasing defaults rates don’t surprise me. Funding Circle’s clients are small businesses who aren’t or don’t want to get a cheaper loan from elsewhere. They are going to include some of the most fragile businesses around. Susceptible to variance in the market.

Variance that we see when there is major uncertainty about what is going to happen. Such as when a country chooses to leave the EU.

I think that the default rates are just going to increase.

Don’t get me wrong. I still think that Funding Circle is great. I just think that it is no longer better than the other two.

So for the last year I have slowly been shifting my money out of Funding Circle and into Ratesetter*. I am just letting my current loans run their course and instead of reinvesting my profits, I am withdrawing them.

Now my split has changed to roughly: 35% in Funding Circle, 55% in Ratesetter* and 10% in Zopa*. In another few years, my Funding Circle will probably be down to about 5%,

Why Ratesetter* and not Zopa*? I don’t really have any preference. Currently, the rates are higher at Ratesetter so that is the one I’ve been going for, but if that changes I’ll start depositing into Zopa*.

To sum it up: I am moving from Funding Circle to Ratesetter* because:

  • The difference in rates has got a lot closer.
  • A lot of the tricks I used to maximise my rate at Funding Circle don’t work anymore.
  • Ratesetter* allows automatic reinvestment so takes almost no work. With Funding Circle you need to manually choose the loans and invest.
  • Default rates are rising on Funding Circle. With the uncertainty of Brexit looming I expect more defaults. Ratesetter* lends to people and not businesses and therefore I consider them to be less fragile (a business is more likely to go bankrupt than a person).

Do you invest in peer-to-peer lending? If so how are you getting on?

Peer-to-peer lending is one of my favourite types of investments, but it is not my only one. I also invest every month into the stock market (check out this post for my tactics) and own some property.

* These are refer-a-friend links. If you click through the links and sign up to one of the p2p lending services, we’ll both get a bonus. You can claim the bonuses at all three sites. The bonuses are:

  • Zopa. (£50 sign-up bonus). Invest £2,000 and get a £50 bonus, (basically an instant 2.5% return).
  • Ratesetter (£100 sign-up bonus). Invest £1,000 for 1 year and get a £100 bonus. (10% extra on your first year on top of the standard return).
  • There is a refer-a-friend bonus for Funding Circle too. A £50 bonus when you invest £1,000. But to get it, I need to enter your email from my end. So if you want the deal then please email me at with your name and preferred email address and I’ll refer you.
  • PoundsandSense

    Interesting analysis. I have around £1300 invested with The Lending Crowd, another P2P service that lends to businesses, and in recent months have seen a growing number of loans looking problematic there. None has yet been declared in default, but considering that in some cases legal action is being pursued I guess it’s only a matter of time. I will probably follow your lead and switch my investments to other P2P platforms that have provision funds.

    • I haven’t used The Lending Crowd, but just loaded up the website and it seems pretty similar to Funding Circle. You lend to businesses and take all the risk. I’m a bit surprised they’re letting them get to the legal action stage before declaring bad debt. That’s quite a long way down the line! On a plus side that I didn’t mention in the post, of the stuff that was initially declared bad debt, about 20% so far has been recovered.

  • SFG

    I didn’t even know these sites existed or that the concept worked! Thanks again for the info Sam! As a local, what is your take on the Briexit?

  • Rommel Bartolome

    I’m a new follower of your blog Sam. Are these services available for other countries/nationalities? Thanks and more power to you!

    • Hi Rommel. Yes there are. It depends what country you’re from. If from the USA Lending Club is the biggest. Google ‘peer-to-peer lending’ followed by your country and there should be plenty of results. Just make sure you do your research before signing up.

  • Peter Morris

    Hi Sam. I have been in Zopa for about 10 years I have put money in and took money out so I knew it worked ok. I like the compounding effect from month one. I now have more interest then capital it feels good to see people borrow there own money. Crazy but true. I have told loads of people about Zopa but I don’t know anyone else who uses it. I will take a look at Ratesetter I like the look of the sign up bonus. Its good to see someone like yourself getting behind it.

    • Hi Peter. Nice, you must have been one of the first people to sign up. More interest than capital is awesome. You must have got some pretty good returns over the years.

      Yeah take a look at Ratesetter. One of the reasons I signed up to all three originally was to get a sign-up bonus at each one.

  • Paul

    From a UK point of view, disappointing that Ratesetter still haven’t got an ISA wrapper up and running. When it’s launched that’ll make them more attractive (for amounts up to approx £15k a year). Sam, will you be getting involved in the forthcoming LISA?

    • I think a LISA it’s a no brainer if you’ve never owned a property… but I have. So if I got one it would involve locking away money until I’m 60. I haven’t yet decided if I think it’s worth it. My fiance on the other hand, doesn’t own any property and will definitely be getting involved.

  • Good article, I once invested a small amount into funding circle a few years ago.
    I never reinvested in peer to peer lending as I found sports arbitrage and matched betting.

    This article has peeked my interest again and as matched betting isn’t as profitable as it was (although still money to be made) going to take a more in depth look at Ratesetter.

  • I’m invested in various P2P companies but Funding Circle holds the most, followed by RateSetter.

    I must say that I’ve not really taken much notice of the 7% compared to the estimated 9.2% thing – I just see 7% as being better than the 0.25% I’d be getting had I left my money sitting as cash in a savings account.

    I’m planning on reinvesting for one or two more years before I start to withdraw on the repayments/interest payments.

  • Joss Gardner

    Nice article. Would love to hear your thoughts on purely “hands off” p2p. Without any time to devote to research/diligence, etc., I want a auto-bid type system that I can rely on to maximise my % as much as possible without me having to do a thing. What are the best options, Sam, given that I’d still ike to spread my money out across multiple platforms (say, 4 or 5 max)? In order of approximate expected rate (in your educated opinion, of course) how do they all compare?

    • Ratesetter and Zopa both have good autobid. It is completely hands off once you are set up. They have similar rates of return, but slightly higher at Ratesetter.

      Funding circle is very hands on, wouldn’t recomend it for your needs.

      If you want to spread further. There is a governing body of sorts for UK peer-to-peer lending. The other members are: ThinCats, MarketInvoice, Lending Works, Lendinvest and Landbay. I don’t have accounts at any of them so can’t really comment on what they are like.

      You could also look at companies outside the UK. There are very high returns if you are willing to lend to people in more developing EU nations.

      • Joss Gardner

        Thanks Sam. How about platforms that allow you to do some manual work to begin with (setting up longer term <5yr loans for example) and then when the initial hard work is done you can just leave the autobid to renew at lower rates as and when they're paid back?
        I don't mind investing time in the beginning but I'm not able to be constantly checking up on things all the time as I'm away from the internet for long periods. A 'Hybrid system' like this would be an ideal balance of time/rate – any suggestions? Does Funding circle's system allow this and how good is their Autobid at renewing?

        • No Funding Circle doesn’t allow that. The autobid feature is pretty terrible.

          I can’t think of any where it is worth putting the time in at the beginning but then the autobid is good enough to take over. It’s either all manual, or all automated.

          Although if you find one, please let me know!

          • I have been with funding circle for 2years and invested 10k and I was reinvesting using autobid, and this year my overall balance has decreased.. i only lend to A and above, I now have a balance of 10426, pretty terrible.

  • osm

    Nice article. However, I’m confused by a couple of inconsistencies with information I find at the platforms themselves.

    1. You say “with Funding Circle you need to manually choose the loans and invest”
    But it seems to me Funding Circle’s autobid feature provides fully hands-off investing

    2. You say “Ratesetter lends to people and not businesses and therefore I consider them to be less fragile”
    But Ratesetter says “RateSetter lends to a diverse range of creditworthy borrowers including: individuals, small and medium sized businesses, property developers and other lending businesses”

    I realise this blog post was written 3 months ago so things may have changed since then, but I just wanted to check that I’m not missing something?

    • Hey Osm.

      1 – Yes Funding Circle do have an automated investment, but it is rubbish and only really works on the primary market. I left it running for a couple of months and it invested less than 10% of my money.

      2 – Ahh I didn’t realise that Ratesetter now lend to businesses as well. Thanks for pointing it out!

  • phil

    Good article Sam, I just wanted to chip in and say that the Autobid feature worked a treat for me on FC. I also tested it with £250 before I put any serious money in. It autobid the whole lot, then I sold it again just to see what sort of liquidity it offered. I had the money in and out within about 1 week. Is it possible that there were not many borrowers on the market when it only autobid 10% of your total pot?

    I think if you follow their guidelines (e.g. set autobid to invest no more than 1% of your portfolio to any one business, and put a minimum of £2,000 so its fully diversified) I think you will get a decent hands off 7%

    What are your thoughts?