RateSetter, the UK peer-to-peer lending site that competes with Zopa and, less directly, Funding Circle, has announced that it has seen £1 million lent through its platform since the site launched just two months ago. That’s a fairly big number, although perhaps a reflection of the lousy interest rates offered by high street banks at the moment and the hard times people are facing.
By cutting down the size of the ‘middle person’, the idea behind all so-called social or P2P lending sites is that lenders and borrowers can get a better deal. In the case of RateSetter, it tries to set itself apart from similar offerings by giving lenders a short term one-month rolling option in which they can withdraw their money at short notice, but also through the way it protects lenders in case of missed payments.
This is done via RateSetter’s ‘Provision Fund’, a reserve of money kept separately into which borrowers pay a fee over and above their base rate of interest according to their credit profile. This fund is then used to compensate savers in case of default. It also means that RateSetter can better guarantee the rates of return advertised to lenders.