Key investment risks
Investing in the RateSetter Lending Platform is not without risk. Below we summarise the key investment risks. You should refer to our Product Disclosure Statement for a more detailed description of the key investment risks, as well as a description of other significant fund-specific risks, other significant lending-specific risks, other significant business lending-specific risks and other significant general risks.
Borrower late payment or default
A borrower or series of borrowers to whom your funds are lent may delay or stop payment on a loan or default on a loan. You may be protected by RateSetter making a claim to the Provision Fund, however, there is no guarantee nor warranty as to any protection from the Provision Fund, and as such you may suffer financial loss as a consequence of borrower late payment or default.
No Provision Fund protection
We may make a claim to the Provision Fund to compensate you in the event of a borrower late payment or default. However, the Provision Fund is not an insurance product and we cannot guarantee or warrant that you will be compensated. RateSetter has discretion as to whether to make a claim and may determine to only make a partial claim or not to make any claim if, amongst other reasons, there are insufficient funds in the Provision Fund to cover all expected claims in relation to existing loans.
Where the Provision Fund buffer is greater than the value of expected losses, it is our expectation that the Provision Fund Claims committee will make a claim to the Provision Fund to compensate lenders for the full amount of any borrower late payment or default. If the Provision Fund Claims Committee determines that there may not be sufficient funds in the Provision Fund to cover all expected future losses (based on loans currently outstanding), then it may reduce the amount it seeks to claim from the Provision Fund to compensate for borrower late payment or default. For example, the Provision Fund Claims Committee may make a claim on the Provision Fund to compensate an investor for amounts of unpaid principal, but not interest, or may decide to delay any claim for interest until a later date.
If you are not compensated by the Provision Fund in the event of borrower late payment or default, you may benefit from debt collection or recovery processes that RateSetter may undertake, which may or may not recover any funds. In such circumstances, RateSetter may also assign your loan to a collections agency or the Provision Fund for consideration.
Assignment of your loan
If a borrower to whom your funds are matched defaults on a loan and you are not fully compensated by the Provision Fund, RateSetter may assign that defaulted loan to a third party, such as a collections agency, for an amount it is able to negotiate or the Provision Fund for $1. Once a loan has been assigned, you may not benefit from any recoveries that may then be made from that borrower. Further information on the assignment of loans is provided in Section 7.11 of the Product Disclosure Statement.
No withdrawal of funds until end of lending market indicative term
You are only able to withdraw (or reinvest) your funds at the end of the indicative term of the lending market in which they are invested, except where i) they are repaid to you through scheduled payments, ii) they are repaid to you by a borrower as a result of the borrower making an additional payment or repaying their loan early or iii) you are compensated by the Provision Fund.
When the early access transfer feature is available, you may be able to request an early access transfer to exit an investment in a loan before the end of its indicative term, provided there are funds from other lenders to replace your interests in that loan. An early access transfer request will not be fulfilled where, inter alia, the value of lender orders in that lending market following execution of the order would be less than the early access transfer market value limit or replacement funders would be matched to the relevant facilitating loan at a rate above the early access transfer rate limit, such limits as set by us from time to time and published on our website. The availability of the early access transfer feature is not guaranteed and may cease to be available to lenders without warning. See Section 7.12 of the Product Disclosure Statement for more information on early access transfers.
Investment longer than indicative term
In the 1 Month Rolling lending market, your funds may need to remain on loan to a borrower or series of borrowers in a lending market, beyond the indicative term. This may occur if, at the end of the indicative term, there are insufficient lender funds available to replace your funds in a loan. This period could be as long as an additional thirty-five months.
If your funds in the 1 Month Rolling lending market are committed to a loan beyond the indicative term, your funds may be returned to your holding account if your investment in the relevant loan is able to be replaced with the funds of a different investor, subject to the funds replacement buffer. If your funds are committed for a longer period, you will continue to receive payments (where paid by the borrower or you are compensated by the Provision Fund in the event that a borrower is late making payment or defaults) and your interest rate will remain the same.
Your investment may also be longer than the indicative term in the event that a borrower or series of borrowers to whom your funds are matched are late in making payment and you are not compensated by the Provision Fund or other collection or recovery efforts.
Replacement funding may not be applied equally
In the event your funds and the funds of other investors in the 1 Month Rolling market need to remain on loan to a borrower beyond the indicative term, the funds of other investors may be repaid before your funds are repaid and there is no guarantee that your funds will be repaid at the same time as other investors in the same loan.
Borrower default impact on availability of funds
In the event of a borrower late payment or default where you have not benefited from Provision Fund protection, you may only be able to withdraw your funds relating to that loan when any collections or recoveries have been made against that loan.
Differences in borrower creditworthiness
Your investment may be impacted by differences in the creditworthiness of borrowers to whom your funds are matched in circumstances where lenders are not fully compensated by the Provision Fund in the event of borrower late payment or default. RateSetter performs a comprehensive borrower risk assessment and lends only to creditworthy Australian-resident individuals and businesses, however, there may be differences between the creditworthiness of borrowers to whom your funds are matched and there may be different risks and different levels of overall risk associated with loans to individuals versus loans to businesses.
Differences in credit risks associated with loans to individuals versus loans to businesses
There may be differences in the credit risks associated with loans to individuals versus loans to businesses. Loans to businesses may be riskier than loans to individuals on an economy-wide basis, however, there can be no certainty as to the relative riskiness of the loans RateSetter facilitates to individuals versus those loans RateSetter facilitates to businesses.
Variances in borrower creditworthiness over time
We assess a borrower’s creditworthiness as at the date of loan application, and our assessment reflects their creditworthiness at that point in time. We do not commit to evaluating a borrower’s creditworthiness on an ongoing basis, although we may do so periodically. Your investment may be impacted should the creditworthiness of that borrower change over time, reducing the borrower’s capacity to repay their loan. In addition, your funds may be matched to the loan of a borrower whose creditworthiness has changed since their loan application was approved, or to a borrower who has been or is late in making payment on their loan.
Value of secured property insufficient to cover defaulted loan
In circumstances where your funds are matched to a secured loan and where lenders funding that loan are not fully compensated by the Provision Fund in the event of a default, your investment may be impacted by the realisable value of the property over which a security interest is held, to the extent that the realisable value is not sufficient to cover the full repayment of the loan. In other words, if a loan is secured, its repayment is not guaranteed.
Ancillary arrangement default
Where there is an ancillary arrangement in relation to a loan to which your funds are matched, a party making payments pursuant to that ancillary arrangement may stop making payments or default on their obligations. In such circumstances, you may be protected by RateSetter making a claim to the Provision Fund, however, there is no guarantee nor warranty as to any protection from the Provision Fund, and as such you may suffer financial loss as a consequence of the third party not meeting their obligations under the ancillary arrangement.
No deposit guarantee
Your investment is not a deposit and does not have the benefit of depositor protection laws as it would have if it were an amount deposited with an Australian ADI.
You can read more about the benefits and risks of investing in the RateSetter Lending in our Product Disclosure Statement.