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Important update

We’ve introduced fixed interest rates for all new loans.

We have been looking at ways to improve the efficiency of our service. After much deliberation, we have taken the decision to move to fixed interest rate loans, where all investors will earn the same return on a loan.

We know this is a big change,
so we want to explain why.

The auction model has existed since Funding Circle launched in 2010: investors choose the interest rate they wish to earn and compete against one another depending on the rate they set.

Whilst we appreciate that many people enjoy the auction model there are many disadvantages for both investors and borrowers, which is why we believe fixed interest rate loans will benefit the majority of our community.

We are focusing on how best to deliver a marketplace that works effectively for hundreds of thousands of people in the UK and we believe moving to a fixed rate model will help us to do this.

Fixed interest rate loans are where the interest rate is set for the loan before it’s listed on the marketplace, as is the case with property loans today.

Typically rates will be set depending on the risk band and the term of the loan. By participating, investors on the same loan will earn the same return as each other. Interest rates for property loans will be set on a case by case basis and will be clearly indicated on the individual loan request.

Here are the new fixed interest rates (before fees and bad debts) which will be introduced over the next month. We’ll review these rates on a regular basis and notify you if they change.

Risk bands
Term of loan (months)A+ABCDE
6-126.0%9.0%10.0%11.3%13.5%17.4%
24-368.0%9.2%10.2%11.6%13.8%17.7%
48-608.3%9.5%10.6%11.9%14.1%18.1%

With the new fixed interest rate structure stated above, we expect the current estimated return after fees and bad debts to remain stable at approximately 7%.

We’ve prepared a detailed Q&A about fixed interest rate loans which you can find here.

We believe this move is in the best long-term interests for the Funding Circle marketplace and our customers. For the majority of investors, fixed interest rate loans will deliver a better service and higher returns. From our analysis, if fixed interest rate loans had been introduced at the start of last year, 71% of investors’ accounts would have higher expected returns.

We recognise there are a group of investors, who actively use the auction model to earn above average returns, who will be unhappy with this news, and whose overall return is likely to decline as a result.

However we have taken this decision in the interests of the majority of our investors and the feedback we have received has been positive. 90% of you told us that you would increase or maintain your investment through Funding Circle if more fixed interest rate loans were introduced.

There will be some changes to how Autobid works which are detailed at the bottom of the page.

Our challenge

There are inefficiencies with the current auction model and how it operates, and we believe setting the interest rate for new loans will help us overcome them.

Auctions tie up investors’ funds

Fixed rate loans are less time intensive

Auctions typically last for 7 or 14 days. Your money is tied up during this time and not earning interest.

Loan requests are likely to be shorter, so your money is locked up for less time.

Auctions are confusing and complex to understand

Fixed rate loans are simple

Many investors tell us they want a simple, easy way to lend their money. Auctions can be confusing and unattractive, especially for new investors.

With a single fixed interest rate, if you like a business, you can lend to them knowing your bid will be accepted — so long as the business accepts their loan.

Auctions are unattractive to borrowers

Fixed rate loans mean more businesses to lend to

Businesses are put off by a lack of certainty around the cost of their loan, which is important to them.

The price of each loan will now be based on the risk (and term) of the loan, rather than the availability of investor funds.

Borrowers will know how much their loan will cost before the funding process, attracting more businesses to Funding Circle, which will create more lending opportunities for you.

Are investors better off with fixed rate?

If fixed interest rates had been introduced in January 2014, 71% of investors would have a higher expected return.

Graph showing the change in gross yield if fixed rates were introduced in January 2014 Graph showing the change in gross yield if fixed rates were introduced in January 2014

Do you use Autobid?

Following the introduction of fixed interest rate loans there will be some updates to how your Autobid will work.

1. Autobid will lend at fixed interest rates for new loans. You can see what these will be in the “how will they work” section at the top of the page. The interest rates for property loans may vary. Autobid will continue to lend to all risk bands you choose.

2. The gross interest rates you have set in your current Autobid settings will remain in place for when you buy loan parts from other investors.