FUNDING Circle has altered its interest rates, lowering the cost of borrowing for lower-risk loans and raising the cost for higher-risk ones.
The peer-to-peer lender said that the new rates, which come into effect on 7 November, will not affect loan parts currently held by investors and will not apply to property loans that are priced individually.
An A+ loan, the lowest level of risk offered by Funding Circle, now has an interest rate of 4.9 per cent on a six-month loan and 5.5 per cent on a 12-month loan. In contrast, last September a 1-12 month loan in the same risk category had an interest rate of six per cent.
At the other end of the risk bands, an E-grade loan now has an interest rate of 17.9 per cent on a six-month loan and 18.9 per cent on a 12-month loan. Last September a 1-12 month loan in the same category offered an interest rate of 17.4 per cent.
It said investors with a diversified portfolio should expect returns of around seven per cent, taking into account fees and bad debt – which is similar to the returns that they can expect now.
“We regularly review our rates, taking a number of factors into account including macroeconomic trends, expected bad debt rates and wider competition in the market,” said the company, which is the third largest lender to small businesses in the UK.
“Over the last six years you have helped over 17,000 small businesses access finance. This has provided us with more credit performance data, allowing us to make even more accurate pricing decisions.”
Funding Circle added that there will be no change to its estimated bad debt rates as a result of the interest rate alterations. It also said that investors who use the platform’s ‘Autobid’ function do not need to do anything as Autobid will continue to place bids on new loans at the new rates.
Funding Circle is not the only P2P lender to change its rates recently. Consumer P2P platform Zopa has cut its rates twice in two months, which it attributed to increased competition and the lower base rate.