We want lending at Funding Circle to be as rewarding as possible which is why we are now trialling a different minimum bid rate for each risk band.
Previously the minimum interest rate you can bid on a loan auction is 4% across all risk bands. This will now be increased in steps accordingly across all risk bands and the new minimum rates will reflect the associated risk of each band.
We believe that this will create more stability in the market, promoting a sustainable environment for both investors and businesses.
When will this happen and what will the rates be?
From this morning, 08:00 Monday 24th June, we will begin the trial of the new minimum bid rates for all new loan auctions. Here is the breakdown of the new rates:
A+ risk band: 6.0%
A risk band: 7.5%
B risk band: 9.3%
C risk band: 10.5%
These minimum bid rates may be adjusted as market conditions change and you can view the current minimum bid rates here.
What does this mean for investors?
If you bid manually, then the main change to keep in mind is that there is now a minimum rate you can bid at for all new loans, which depends on the risk band of the business. This will be the minimum rate you can select on the loan auction page where 4% was the previous minimum.
If you’re using Autobid, it will only ever bid on auctions at or above your Autobid rate. If your Autobid settings are below the minimum bid rate, Autobid will automatically bid on the marketplace at the minimum rate.
The minimum bid rate only applies to new auctions, so if you’re buying loan parts from other people, Autobid will buy loan parts at or above your Autobid rate. Remember Autobid only buys loan parts that are sold by other investors at par value.
Additional information on how minimum bid rates will work
There will now also be a limit on the portion of a loan that can be funded by Autobid users at the minimum bid rate, to ensure that both Autobid users and those bidding manually have equal opportunities to lend on a loan requests.
Up to 50% of the available amount of the loan can be funded by Autobid users bidding at the minimum bid rate. So on loans where Government funds 20% of the loan, a maximum of 40% of the loan can be funded by Autobid users at the minimum rate. Autobid users will be able to fund more of the loan if they bid above the minimum bid rate.
The introduction of minimum bid rates for loan auctions will allow the possible introduction of new risk bands in the future.
You can discuss how minimum bid rates may affect your investing strategy with other community members in our forum.
The Funding Circle Team