LoanPad - so how do you actually lend out money?!

I find it all to be quite automatic once the moneys in your choice of account, mines in the premium isa

unlike other peer-peer stuff I've done its worth noting ALL your money makes interest EVERY day, whether its invested or not.

So the best thing to do is sit back and have a biscuit and a brew while we all become millionaires! haha

All the money appears to earn interest indeed, but at the rate that Loanpad fixes, which is lower than that of the average loan.

Or see it this way: If the average loan was 8%, and you earn 4%, it's like HALF of your money earns interest every day, and the other half doesn't.

If the average loan is 6%, and you earn 4%, it's like TWO THIRDS of your money earns interest every day, and the other third doesn't. Etc.

The real figure is probably something in between.

And it's very easy to get 6+% on loans on any other platform. So by being with Loanpad, you're missing out on at least a third of the interest, if not more.

Of course, part of what you're missing out on becomes a "cushion": in case a loan could go wrong, you might still be repaid.

But just how large that "cushion" needs to be? Are you sure it needs to be set at the present level? Are you sure Loanpad isn't setting it larger than it needs to be? After all, if the deduction was larger than the cushion needed to be, that'd be Loanpad's profit.

I just don't buy the "all of your money earns interest" with Loanpad. As a proposition, yes, that's one way to look at things. But that's not the way I look at things.

That analysis seems to be based on some fundamental misunderstandings. 

Of course there's a margin between the rate that the platform receives and the rate that lenders receive. That's true for all platforms in one way or another. It's this margin that pays for the platform's costs (creating and maintaining the platform, performing the due diligence, sourcing and monitoring the loans, complying with the regulations, etc; and yes, it also covers the platform's profit margin).

The margin is not used as a "cushion", by which I assume you mean a Protection Fund. There is no PF on Loanpad. If one of the loans ends up in a capital loss then lenders will share that capital loss. There is an Interest Cover Fund that has been pre-funded by the platform to service interest for loans that fail to pay, but it isn't there to cover capital losses. 

The reason that we lenders accept lower rates on Loanpad than are paid by other platforms is that we perceive Loanpad to be a lower risk than those other platforms. If you can find another platform that pays 6% with the same level of risk as Loanpad I will be very happy to consider it. I.e.: a platform with no cash drag, where your funds are instantly and daily diversified over all loans on the platform (currently 150 loans), where the platform holds a first charge on all loans, where no single loan has an LTV over 50%, where the average LTV is only 43%, where all loans are also carefully managed by experienced lending partners with a first loss skin in the game, where access to funds is normally 60 days (an average of 30 days if the rolling withdrawal method is used), and where the access times have always been achieved so far throughout the life of the platform.

Whether 4% is sufficient reward for the risk is the important question, or whether the 6% platforms are offering better value. 4%on Loanpad is still acceptable for me right now, but I accept that that is becoming marginal now that FSCS rates are edging closer. It seems odd to me that average platform rates have been falling during a time when interest rates have been rising. Presumably, its because of a current oversupply of willing lenders. I'd expect that to reverse soon as bank rates continue to rise. In which case, rates on Loanpad may also have to rise to remain attractive. 

EDIT: crossed with ilmoro, who was much more succinct.