Afternoon guys, this is Lucy the customer service manager at RateSetter. This ia a Q&A blog that answers the questions that have been on the community around the company.
Can you tell us about the history of RateSetter and how it got started?
RateSetter was launched in October 2010 to offer an alternative to savers who are looking for a fair return on their money, and to borrowers who want a simple, low cost loan, delivered with an old-fashioned idea of customer service. RateSetter is not a bank. RateSetter does not lend money itself. RateSetter help ordinary people lend and borrow money.
Borrowers say how much money they need, then they set the interest rate they’re happy to pay. Savers say how much money they want to invest, then they set the interest they’re happy to receive. RateSetter simply match them up. RateSetter was founded by Rhydian Lewis who after working closely with banks in his role at Lazard felt the opportunity for peer-to-peer lending was ripe. He was soon joined by Peter Behrens, who practised as a solicitor at Ashurst, before joining RBS as a banker.
They set about establishing the principles behind RateSetter, and succeeded in raising seed funding from angel investors in early 2010. RateSetter is situated in the heart of London, in Southwark, just behind the Tate Modern.
Can you explain a bit more about the ‘required age’ and how the credit check is calculated?
RateSetter’s minimum borrowing age is 21 - but 18 for giffgaff. Prior to RateSetter’s partnership with giffgaff the minimum borrowing age was 24 – the relaxation of borrower age restrictions proves RateSetter’s flexibility and commitment to offering giffgaff members simple, safe and great value loans. This commitment to giffgaff members and RateSetter customers alike has earnt RateSetter a 98.9% customer recommendation level.
The ‘credit check’ part of the process is actually in two parts. The first is a review of the members financial status to determine if a loan is appropriate for the member and ensuring they have the ability to repay. This is not as strict as a standard loan application because members make a contribution to the cost of the loan. The second check is an identification check to ensure the application is not fraudulent and that the regulatory anti-money-laundering rules are complied with. Typically these do require members to be on the electoral roll and to have had some form of financial product such as an overdraft facility. This can be a problem for younger applicants who have just reached 18 years of age.
A few tips that can help members pass the ‘credit check’ include:
Get on the electoral role, i.e. have the ability to vote
Increase the size of the financial contribution towards the mobile phone
Use real names, not nicknames or shortened versions
Provide bank details that are yours with your name at the provided address, i.e. the application will fail if you use your parents bank details
Be very careful to enter the correct date of birth and bank account details, any miss types will cause the application to fail
How the overall APR is calculated?
A typical APR is 9.7% (£445 loan over 24 moths with a £50 deposit – as on the 15th of January 2014) which is very competitive. We encourage people to shop around as everyone’s circumstances are different but we feel confident this offer is representative of the risk involved and a good offer for giffgaff members.
APR is made up of lender and other rates that are expressed as a percentage of the loan value and fixed fees that can be £x. The higher the loan value, the lower the APR due to the fixed fees being absorbed. Another factor that affects the APR is the duration of the loan, the shorter the loan the higher it will be, due to fixed fees being absorbed over a shorter time.
Why is RateSetter better than getting an interest free credit card?
A loan from RateSetter is better than an interest free credit card as it is simpler and more straightforward. An interest free credit card would provide a better option provided that:
The member can be accepted for the card
The promotional balance applied to spend
There are no extra or hidden charges; and
That the member is confident they will pay off the balance.
Once promotional rates finish, APRs on credit card debt will typically revert to 16.9%, 19.9% or higher. In addition these promotional rates are only available to customer’s with an excellent credit rating and history of good financial management so many customers will not be able to obtain this credit. The giffgaff mobile phone loan is available online and makes things a lot simpler and quicker for the member.
What's the difference between RateSetter and a typical payday loan company?
The most striking difference is that RateSetter’s typical APR is 9.7% (£445 loan over 24 moths with a £50 deposit – as on the 15th of January 2014) for a giffgaff phone, whereas a Payday loan company’s APR is over 5,000%. To put this into context a £500 loan with RateSetter after one year (and no repayments) would typically grow to around £550; £500 with Payday loan company would grow to £25,500 owed! RateSetter offers some of the lowest APRs on the market to customers with good credit history whilst a Payday loan company offers the highest rates to customers with “troubled” credit history. RateSetter’s loans are typically designed to be paid over a period of 12 months or more; Payday loan company is for small value sums over days or weeks.
Sign up as a RateSetter lender (this takes 2 minutes)
Transfer money into your RateSetter account
Select your product (term) and rate, and put your money on the market
Get matched with a borrower and start earning great returns
RateSetter offers up to 5.7% return on lenders money.
Comparatively it’s been reported that up to 80% of savings accounts could be earning savers as low as 0.05%, and are therefore ‘zombie accounts’. Earning a pitiful 50p a year on savings of £1,000, highlighting the potentially negative impact that not keeping on top of savings can have.
Some other key benefits of becoming a lender through RateSetter:
100% lender funds returned
All fees are included in rate
98.9% customer satisfaction
Simple, safe, low risk lending
What does the future look like for RateSetter?
RateSetter was founded by two successful financial experts in 2010. Over the past 3 years RateSetter has had multiple over subscribed capital raising rounds, and has built a strong management team of seven. RateSetter grew 297% in 2013, and expects to double that growth this year. The future of RateSetter and P2P is extremely positive. The industry becomes regulated by the FCA in April, and RateSetter expects to break £250m+ worth of lending by the end of the year.
Hope you have found this information useful. If you do have any other questions, please feel free to reply in the comments.