In my previous post, I outlined some of the factors
leading to PtPL losses. In this post
I’ll look specifically at the risks associated with individual PtP platforms. By the way, don’t believe the likes of Lord
Adair Turner with his ‘Peer to Peer is Doomed’ nonsense. Lord Turner has significant interest in a
traditional business loans company hence his (biased) condemnation of Peer to
Peer Lending!
I’ll ignore the big three; Zopa, Ratesetter and Funding
Circle as their returns are relatively low (typically 4% - 7%) and the first
two have provision funds to (hopefully) cover any losses. The sites I favour pay 12% or more but with
this comes obvious increased risk.
Typical examples are Saving Stream, Funding Secure and Money Thing.
These platforms offer all their loans secured against
material assets such as land, property, cars, boats, planes and works of
art. Incidentally, this is a much better deal
than Funding Circle, where most of the loans are unsecured and the buyer must therefore factor in defaults with limited or no recovery of capital or remaining
interest.
Here are two key ways to evaluate these platforms:
Number ONE: Look at the state of the Secondary Market
These three platforms each have a secondary market where you
can buy and sell loans held by other people rather than buying new loans. But why would you want to do that, I hear you
ask? Well, you may wish to buy additional
loans in order to diversify, ie spread your cash across more loans rather than
waiting for new loans to appear.
Alternatively you may want to suddenly withdraw some cash rather than
waiting until the end of a loan.
So what to look for?
After Christmas 2015 there was a UK PtP loan famine. In other words there was nothing available on
the secondary markets. This is good news
if you are selling loans but frustrating if you want to buy. Now (late March) there is something of a
glut. The three platforms I mentioned
all have loans to buy on the secondary market.
What to look out for is platforms with too much on offer on
the secondary market or worse still new
loans that are not fully funded. If the
platform offers the ability for sellers to off load unwanted loans at a discount, then are
there a lot loans offered at a discount that are still not selling? This may suggest that lenders are keen to
offload existing loans even at a loss.
You then need to find out why they may be unhappy with the platform. This brings me neatly to the second point.
Number TWO: Read the PtP Independent Forum
The forum is UK-based but is also frequented by lenders in
mainland Europe. The financial expertise on this forum is amazing. Find out what
experienced lenders think of each platform and the quality of loans being
offered. Do others share your concern
about a particular platform? Use the forum
to find out the default record of individual platforms and how often the
capital and unpaid interest were eventually recovered.
