Lendwise approached Financial Thing in an effort to provide information about its peer to peer lending business. London based Lendwise offers peer to peer lenders investment opportunities in UK graduate student loans. Here is a Q&A session that I conducted with Lendwise in March 2022. Please note I do not currently invest money through Lendwise.
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When did Lendwise launch and offer its first loan?
Lendwise launched in the last quarter of 2018 and the first loan agreement was signed on 12/09/18. It was for £2,720 to a student who studied for their MSc in Urban and Regional Planning at Heriot-Watt University in Scotland. This loan had a 20-month term and is now fully settled with all repayments received on time.
Can you tell me a little about the founders of Lendwise? What are their experience levels when it comes to lending?
The founders of Lendwise have known each other since the 1990’s during their university times in the UK and have kept strong friendship ties since then. After pursuing further higher studies and remarkable professional careers they decided to work together on Lendwise.
The overarching principle behind Lendwise is that all financial products should have a positive social outcome. This is achieved through offering affordable loans for higher education and positive returns to lenders.
Each founder has more than two decades of experience in banking ranging from investment banking to structured finance transactions, liquidity management and financial planning.
For new lenders, can you give an explanation of what Lendwise offers to borrowers?
Lendwise offers borrowers the opportunity to fulfill their educational dreams by helping them fund their tuition, and to some extent, their study-related personal living expenses which they would not be able to do due to the lack of funds. This education then leads to better career progression and salary enhancement, which in turn favours the lenders.
How does Lendwise source borrowers?
Borrowers are sourced through a number of channels, including word of mouth and referrals from our existing customers. We also attend live in-person postgraduate fairs
How much interest do student borrowers pay and how is this determined?
Lendwise loans are “made to measure” rather than “one size fits all”! In this respect, the borrower’s interest rate depends on their credit record, loan amount, duration, and a number of other factors (such as university tier, course strength, etc.). Lendwise scores all these factors using our proprietary scoring algorithm. Typical borrower rates range between 8%-12%.
How long are loan repayment terms?
Again, this reflects the borrower’s profile as well as the amount borrowed but repayment terms vary from 2 to 10 years.
Why would a student choose Lendwise for their loan versus other lending options?
We would like to think that Lendwise loans are “fair, flexible and simple”. The loans are flexible as they allow the borrower to make one-off, unscheduled top-up payments and even full settlements without incurring any penalties.
Furthermore, loans carry a fixed interest rate, hence the fixed instalment amount, which proves easier for the student cohort to understand and plan their monthly spending. Importantly, there are no repayments required whilst the student is in full-time study, allowing them to focus on their studies. We even allow for an additional “grace period” of up to six months after the course end date before the repayments start so there is time to sort out employment.
How difficult is it for a student to obtain a loan through Lendwise? What checks are in place to ensure repayment?
Our dream was to create a platform where the process of registering, applying and getting a loan would be as seamless as possible. Provided an applicant passes the automated KYC (Know Your Customer procedure and the scoring algorithm considers them fit for a loan, the borrower can be approved in as soon as 48 hours.
To ensure repayment on the contractual dates, the borrower is automatically notified by email prior to the date of payment. Loan repayments are collected through Direct Debit for which the borrower is also notified by email in advance of a debit. Our Credit Control department monitors all accounts on a daily basis and will take appropriate action to recover any funds due and owing. Management meets with the Credit Control team twice a week to discuss problematic cases and provide direction as to their handling.
How is repayment enforced should a borrower stop paying on their loan?
Detailed steps are prescribed in our Arrears Handling Policy. In summary, these steps range from scheduled and unscheduled communications and letters with increasing level of escalation. If necessary, enforcement is achieved through the UK Courts or overseas court if relevant. Since inception, we have an excellent recovery rate whereby, for the problematic cases we have had, we have brought these loans back on track or escalated to a full recovery path.
It is also worth remembering that a legal judgment can have a material detrimental impact on borrowers’ credit record and their subsequent ability to secure credit, so this also acts a deterrent.
What are Lendwise default statistics?
Lendwise default* statistics are constantly below 2%. We are fully transparent with regards to this as well as many other statistics as we publish them on our website on a monthly basis (https://www.lendwise.com/statistics)
What are the risks of lending through Lendwise?
As with all peer-to-peer loans, our products place your capital at risk. You may not get back the full amount you lend and/or the interest you expect. Loans are made to individuals over a period of up to 10 years and as such, they can be illiquid. The tax treatment of interest and reliefs on defaults may be subject to change and tax treatment will depend on the lender’s individual circumstances.
Does Lendwise have a secondary market should investors want to exit?
Yes, Lendwise operates a secondary market should investors want to exit a loan investment earlier than the loan maturity date. Just remember that exit possibilities are based on demand and supply and are not guaranteed.
Can lenders use an ISA wrapper to invest in Lendwise loans?
If a lender deposits money onto Lendwise, how quickly can they expect the money to be deployed into loans?
Money can be deployed to loans immediately, especially if the lender sets up and activates an AutoLend portfolio, a special tool we have built so lenders can automatically invest in loans carrying certain features matching their defined investment strategy.
What are the expected lender returns?
It is important to remember that on the Lendwise platform, Lenders are able to diversify their investments and define their own risk appetite in terms of target interest rates. As of today, active lenders on Lendwise’s platform have received annual returns ranging from 4% to 10%.
When does invested money start to earn interest and how often is it paid?
Invested money starts to earn interest as soon as it is deployed into a loan. For loans in grace, interest is accrued and starts being repaid (with principal) once the loan enters repayment (typically after the course end date) whereas, for seasoned loans, interest (and principal) is repaid on the monthly repayment date based on the loan agreement.
The UK government’s website shows there are currently £141bn of outstanding student loans (as of March 2021), a number that is expected to grow to £560bn by mid-century. Do you see student debt becoming an issue rather than a solution?
Arguably yes, however speaking for Lendwise, we chose to enter the post-graduate and professional qualifications funding space because we feel there is less risk there as repayments are largely based on post-study employment. We are also-to a large extent-cautious and conservative with regards to our approval procedure so as to make sure that post-study employability of applicants is to a large extent statistically assured.
With the challenging peer to peer lending landscape, what tips can you give investors should lenders’ look for stability?
- Build a well-diversified portfolio of p2p assets by investing in loans from different platforms
- Opt for more reasonable rather than exceptional yields
- Understand and analyse the underlying cause the loans you invest in relate to
What is the single biggest challenge Lendwise faces?
Matching borrower demand with lender funds in such a way so as to scale up appropriately
Any new products or exciting news you can share?
Following the launch of our IFISA investor product, we will be soon launching a new lending product, the “pro-loan”. This will be a short-term (up to 5 years), any purpose loan of between £2k-£10k offered to university graduates with a prime credit record. We aim to be able to offer this loan from April 2022 using a fast-track, seamless application/approval online process.
*Note on defaults: A loan in default is considered to be any loan that has been in arrears for more than 90 days or a loan in arrears for less than 90 days where we have information to believe that there is no reasonable expectation that the borrower is going to repay the loan on the original loan repayment date and/or terms. As a result, this category can include loans where repayments are still being made and are in the process of clearing their arrears. Such loans will be reflected in the corresponding recovery data row. The amount includes any portion of the loan that has not yet been repaid and/or all costs incurred by the lender in relation to the enforcement of a defaulted loan, where such costs are not recovered in full from the relevant borrower.
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** This information is not financial advice and has been prepared without taking your objectives, financial situation or needs into account. You should consider its appropriateness for your circumstances. All investing carries risks. Opinions expressed in this review are opinions based on my own personal experiences. The FSCS does not cover peer to peer lending and your capital is at risk. Please don’t invest more than you can afford to lose. **