Crowdlending: Method of the fixed rate or auction reversed, which choose?
Business lending platforms are all a different operation, but to determine the rate at which you will earn money there are two majority schools. Some fix the rate arbitrarily, in which case you have one rate fixed and imposed, the other allowing you to choose the rate of the loan through reverse auctions. In this case, only the rate low and allow to fully fund the credit are selected, the others being released.
The advantages and disadvantages of the auction and fixed-rate system
By choosing you even your rate you can optimize performance, in condition of course that there is more or less balance between the number of enterprises and the number of lenders. If for example you can give 1 to 10%, for example, you may decide only to loan at a rate of 9.9%. Please note that the rates announced by the platforms are the average rates and they are often quite far from the maximum rate that can be achieved. For example, my last doctor Salahshour loan in 2015, I got 9.50% while the average rate displayed is 8.77%. I've already seen more significant gaps e.g. LB Agri or the gap between the price that I got (which was not the maximum rate) and the average rate stands at 1.06%.
On average the difference I get compared to the average rate is 0.50 to 0.60%, nothing much extraordinary in these circumstances it is better invest in variable rates and bid at the last minute. Furthermore the auction system brings a small side sympathetic to the fact to invest his money to place it at the best rate, simply increase regularly if its previous tender is not accepted by the borrower. You will see that in the approximately 60 last minutes, many offers are made and the rate will decrease sharply. The counterpart of this system is the need to have time to bid and then to raise and be especially present in the last 60 minutes of a project. What is hardest is to have no accepted offer at the end of the collection while the project perfectly match your investment criteria or raise too low.
Profitability seems no greater according to the use of auctions or fixed rate if the market is balanced. Indeed, the average rate on November 2015 shows for example the profitability average of 8.20% for finsquare or Unilend and one can less for lendix.
Note that in the images below, projects are not necessarily comparable in terms of risk, so in terms of rates.
However, if there is imbalance in favour of the investors (it means fewer investors than companies), the rates will be very high which is very advantageous for lenders. But the opposite effect also exists, this is what happened on Finsquare. Since say February 2016, an influx of investors in fact lower rates in spectacular ways, from 7-8% to 3% or 4%. Thus if there is imbalance in favor of borrowers, rates are abnormally low.
If you feel like me that these rates are far too weak to invest, I advise you to change platforms and to leave from platforms at fixed rates as Lendix. where financing is particularly fast, sometimes just a few hours, but the rate was then well best. The principle of first come, first served as a concert of Johnny with tickets ranked first half price for the first 200. For the calculation of repayments, in fact this is not very important, there are many platforms with a simulation of repayments, the most important being mainly to have a good profitability, which is difficult to calculate, but below 5%, I advise to invest in crowdfunding, even with 1% of default, it is no longer profitable. and if the platform is especially lax, you can even lose money.
Many platforms of crowdlending turned to a fixed rate, and then return to variable rates
Several platforms in the world have changed their model, from the auction at the fixed rate system, and then returning to the auctions. Furthermore the Finsquare platform has introduced this year 2015 the fixed rate in addition to its auction system… can we conclude that French platforms will soon abandon the auction? I don't think because if you look at currently 2016 platform is almost more than fixed rates, the average rate being rather well below, finsquare can thus maximize its margin either propose rates lower to borrowers at the expense of investors.
The goal of the auctions is the basis is to lower the rate bordering on the 10%. This rate are more than rates of appeal as the prices displayed on the pubs in supermarkets. Indeed the high rates have attracted more d´investisseurs and therefore have lowered rates. While on the platforms at fixed rates, they have had more trouble to complete some projects quickly. There will be more and more lenders, in return there will be more and more borrowers and it is to be hoped platforms, a balance, lenders did not want to go down below a certain rate. But as there are many new investors no or few qualifications, it may be possible that rates remain abnormally low. And to compensate, it will migrate on younger platforms, therefore more risky for a nice risk premium.
Classification of the platforms according to the method of determining the rate, either fixed or at auction. Most platforms run on the principle of the fixed rate as you can see below: platforms fixed rate (non exhaustive list)
- Ready to map
- Estate guru
Management is indeed simpler for the platform, as on a variable rate is platform racing business, while on a fixed even if it y more work to determine the correct rate (it is very difficult, must be a crystal ball), it is totally useless to hunt business.
My personal strategy
For my part the fixed rate system does not amuses me. Bidding to the advantage of having often interest rates on good projects, whereas in the rate system fixed, for 9% take position on bad projects, it means risk. However, I find that Finsquare fixed rates are too low compared to the rates obtained by the auction system (recall that article date of 2015). At the time I choose to place myself on all the projects that interest me in a little higher than the fixed rate (often from 7.50 to 8.00%). This works in 90% of cases, which keeps me from having to raise, and which I find, allows me to get more acceptable rates. However, if I want the performance I n´hesite not to climb to 8.5.
See for yourself the variable rate at the beginning of the platform is super interesting.
I still appreciate Finsquare innovation which blend rate auction and fixed rates. Who wants to see its validated contribution chooses the fixed, others are waiting for the last moment and adapt to the evolution of the proposals. We arrive a few minutes before the deadline and is made an offer or two, it is policy to pay, but annoying, because it must be present at the right time. There are advantages and disadvantages, between fixed-rate and the auction but when there is balance both compensate themselves.
Initially, the fixed rate was significantly more down but demand less work. Then it was also interesting to make fixed rate as the variable, depending on your goals.
And here I would like fixed rate but there is more, because it is clearly more interesting than the auction.
Personally, if the auction were to disappear, I would immediately cease lending to businesses on many platforms. At least that is what I was saying before 2016, eventually I simply passed on platforms at fixed rates. I got 9 and more on unilend and finsquare on projects on which I positioned, these projects would have been to 6/7% on fixed. On Finsquare I just at 2045 hours watching the evolution of the auction and I do my proposal between 20 h 50. I wish so strongly that this system continues but with time I find that having the choice is much better an option is always more interesting than an obligation. 50 loans, I have an average to 8.75% in 2015. This rate includes loans to 9.9% from the beginning of the platforms and the super bonus.
For me the most important is to take pleasure with a big profitability, while fixed rate or auction? With time and the large number of platforms, I turn more and more on a fixed rate, which is higher by 2 to 4% since 2016 than the average rate of variable crowdfunding platforms (reverse auction). While in 2015 I did exactly the opposite. On end of 2015 on the contrary I was indifferent. It is therefore a question of balance of the market eventually. 2016 is clearly less efficient and should be preferred the fixed rate, even if sometimes you have only one or 2 hours to invest, it is better not to invest rather than having an unprofitable investment. In addition, please be aware that overall rates will decline because of the reduction in the premium of risk in 2016.
Each is based on his interests and his desires. And you rather fixed or auction?
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