Peer To Peer Lending Defaults – How Are They Handled?
Update October 14th, 2017
If you are a regular reader of my peer to peer lending reviews, you’ll know I list company / platform failure as the single biggest risk to lenders. One of the other major considerations lenders face is loan defaults and capital / interest recovery. Most peer to peer lending loans are secured but what good is the security if it can’t be recovered? Not much.
Loan defaults are an inevitable part of the peer to peer sector and something lenders have to become comfortable with. Defaults are wonderful learning experiences designed to keep lenders’ guards up. When you lend money through peer to peer, the first default is always a shock to the system and a good reminder of why company and loan diversification is so important. The longer you hold your peer to peer loans and the longer the companies remain in business, the more defaults will occur.
When a loan defaults and the assets need to be recovered, legal expenses are incurred and are deducted from the recovery total amounts. These expenses can mount up quickly and can result in lender capital losses.
Throughout my peer to peer lending, I have experienced several loan defaults. I thought it would be valuable to highlight how all the companies I have invested through, handle their defaults and show just how long it can take to recover lenders’ money.
My active and defaulted loans are listed below where applicable. All default information was accurate at time of writing on October 14th, 2017.
Ablrate: 6 active loans, 1 loan in default
My single defaulted loan has been making its way through the court system since July 2016 and is still in the hands of the recovery lawyers. Ablrate’s recovery actions appear to be acceptable, however I’m unsure how much capital and interest will be recovered due to the nature of the unconventional assets.
This loan was back in court once again in October 2017 and the borrower tried, once again, to delay the default process. A 15 month recovery process with no conclusion in site, shows just how long the default recovery process can take.
Ablrate sends lenders detailed update emails regarding defaults and also gives limited information on its website. This can be accessed under the “current investments > admin notes” menus on your account dashboard.
Assetz Capital: 104 active loans, 2 loans in default
I have the upmost confidence in Assetz Capital’s recovery process and team. All my defaulted loans are secured by property, so while I expect the processes to be lengthy due to the nature of the loans, I do expect to receive capital and interest; exactly how much, is unknown. Assetz’s website provides detailed updates on the recovery process and timeline.
Here is a description of my defaulted loans and their statuses:
Loan 1 was placed into default in April 2017 and the security property was reportedly sold in September 2017 with an update promised mid September. I personally haven’t received an update and the funds are still allocated to this loan suggesting a delay in repayment or a technical glitch. I will update this as soon as I have more information.
Lon 2 defaulted in September 2017. The security held on this loan is a second charge on residential property as well as debentures, (charges on business assets), so I expect a lengthy recovery process.
It is best to avoid defaults if possible, so I try to sell Assetz Capital loans on the secondary market if I feel they maybe be heading for trouble. Some investors are willing to take a chance on troubled loans, sometimes due to lack of loan supply.
Assetz Capital keeps lenders updated on defaulted loans via their website under each loans page, under the “activity” menu on the loans page.
Bondora: 0 active loans, 7 loans in default
I stopped investing in Bondora in 2015 due to the loan volatility and the high risk nature of unsecured European personal loans. None of the outstanding capital or interest from my defaulted loans have been recovered, which I expected since all the loans are unsecured. Very little recovery information is provided on defaulted loans other than that a default payment judgment has been obtained and handed to a bailiff through the court system. You can read more about Bondora’s recovery process here on page 21.
Bondora provides lenders loan default information on its website but the information is somewhat hard to find. It is accessible via the main account dashboard by clicking “investments” then clicking on an individual loan and clicking the “collection process” menu.
I no longer invest through Bondmason but when I did, I experienced two or three defaults. They were all handled swiftly and 100% of outstanding capital and interest were repaid. Defaults are clearly displayed in your account dashboard on Bondmasons’s website.
Collateral: 24 active loans, 0 loans in default
Since Collateral is a newer company, I didn’t expect to see any defaults so soon. Currently there is one borrower who has defaulted on five separate loans that were facilitated in 2017. I’m not an investor in any of these loans but on October 12th, 2017, I checked on Collateral’s website out of curiosity and noticed the last default update was in July 2017. After some further digging, it appears these loans are scheduled to be repaid at staggered dates before the end of 2017. One loan has been fully repaid, so I’m hopeful the others will be too.
If you an investor through Collateral, you can access defaulted loan information through your account by clicking on the “loans” menu and clicking “defaulted loans”.
I no longer invest through Fruitful and since it operated as an autoinvest portfolio, defaults were handled in the background.
Funding Circle: 32 active loans, 7 loans in default
In early 2016, I decided to exit Funding Circle due to the reduction in interest rates, but then I reinvested in mid 2017.
Here is a description of my defaulted loans and their statuses:
Loan 1 ran into trouble in November 2015 after making 19 out of 60 loan repayments and is still in the recovery process. As of October 2017, payments continue to be made on this loan and so far 65% of my original capital has been recovered.
Loan 2 ran into trouble in September 2015 after making 1 out of 60 loan repayments. As of April 2017, the loan was closed and written off as bad debt with no chance of recovery. I received 1.25% of my original capital.
Loan 3 ran into trouble in December 2015 after making 3 out of 60 loan repayments and is still in the recovery process. As of October 2017, the recovery process continues with little progress on repayment. So far 3.85% of my original capital has been recovered.
Loan 4 ran into trouble in April 2016 after making 7 out of 8 loan interest-only repayments. The final payment which was a large capital and interest repayment was defaulted upon. As of October 2017, the recovery process continues. It is expected the process will continue into mid 2018. So far 0% of my original capital has been recovered.
Loan 5 ran into trouble in December 2015 but all loan payments remain up to date despite the company being in administration. So far 65.8% of my original capital has been recovered.
Loan 6 ran into trouble in November 2015 but all loan payments remain up to date despite the company being in administration. So far 66.45% of my original capital has been recovered.
Loan 7 ran into trouble in September 2015 but all loan payments remain up to date despite the company being in administration. So far 61.34% of my original capital has been recovered.
As you can see, Funding Circle’s recovery efforts have been somewhat successful. I find it impressive that in some cases, Funding Circle has been able to negotiate repayments to continue, despite companies being in administration and despite some loans being unsecured. Every loan default is different so I don’t expect recovery efforts to always be successful.
Funding Circle has been very good at keeping loan default information updated through their website. The easiest way to view this information is through your investor dashboard under “recent loan comments” at the bottom of your main account summary page.
Funding Secure: 63 active loans, 2 loans in default
Funding Secure has a good recovery history on items such as jewelry and cars, but has a limited recovery history on property related loans.
I currently have two property loans in default from which I have received no payments on since Funding Secure pays all interest and capital at the end of the loan. Here is a description and status of my defaulted loans:
Loan 1 began in August 2015, started running into trouble in February 2016 and still remains in recovery as of October 2017. This six month term loan illustrates how long a property default can drag on for.
Loan 2 began in January 2017 and was defaulted in August 2017 and still remains in recovery as of October 2017.
Funding Secure has recovered eight additional previously defaulted loans. Five were jewelry loans where 100% of capital and interest was recovered and two were car loans where 100% of capital and interest was recovered. The eighth loan was a property related loan that went live in June 2015 and recovery was finalised in February 2017. The recovery amount was lower than the owed capital but Funding Secure covered lenders’ capital losses, however no interest was repaid.
Funding Secure has continued to be very good about keeping lenders updated through their website under the “loan updates” tab on each loan page.
Growth Street operates a portfolio of loans to where lenders assume the same risk no matter whether they have invested in 1 loan or 1000 loans. Defaults are handled in the background so lenders have no information or involvement with the defaults.
Landbay operates a loan portfolio system and is yet to experience a default. Even if it did, Landbay would handle the default in the background, since all lenders assume the same loan risk across the total loan portfolio.
Lending Crowd: 0 active loans, 1 loan in default
My investment with Lending Crowd was relatively short. I still have one loan in default.
The loan in question is a business loan secured by property owned by the Director. The loan went live in September 2015, 5 out of 24 payments were made and the loan defaulted in February 2016. The loan is still in the recovery process as the property which secured the loan is for sale.
Lending Crowd sends default update emails to lenders and also keeps the loan information on their website under “loan comments” on the loan page.
Lendinvest: 7 active loans, 0 loans in default
I haven’t experienced any defaults through Lendinvest.
Loan statuses are clearly displayed on Lendinvest’s website in your investor dashboard under the “portfolio” page.
Lending Works operates a portfolio of loans to where lenders assume the same risk no matter whether they have invested in 1 loan or 1000 loans. Defaults are handled in the background, so lenders have no information or involvement with the defaults.
Lendy: 16 active loans, 0 loans in default, 2 troubled loans
Lendy currently has 19 loans officially in default with 5 of those being a collection of property on the one piece of land, belonging to the same borrower.
I currently own 2 loans that are in trouble and will likely be put in default status soon.
Here are the details of the troubled loans:
Loan 1 was issued in April 2016 and is a multi million pound housing development loan. The loan ran into difficulties in August of 2017 and was placed into the hands of receivers in September 2017. The property is currently for sale.
Loan 2 was issued in June 2016 and is a loan on a high end London apartment. The loan ran into difficulties in September 2017 and was promptly placed into the hands of receivers. As of October 2017, the flat is expected to be sold to a third party.
I’m not surprised about the high default rates due to the high risk nature of property development lending and the rates being paid the lenders.
Despite some complaints from the lending community, I believe Lendy’s recovery efforts have been swift when loans appear to be headed for trouble.
Lendy send out notification emails to lenders when a defaulted loan is recovered. Lendy also provides current default information under each loans individual page. This can be accessed through your investor account under the loans “recent updates” menu.
Mintos: 76 active loans, 0 loans in default
I have no experience with Minto’s default recovery on standard loans without buy back guarantees. I see no real need to invest in these loans while buy backs continue to be offered at attractive interest rates.
Since I only buy loans with buy back guarantees, all my defaulted loans have been bought back without any issues. I have over 90 completed loans and I know some of these were bought back, but I’m unable to tell which of these defaulted and which were paid off.
Mintos provides limited loan default information which can be accessed through your investor dashboard under the “my investments section”.
Moneything: 31 active loans, 1 loan in default
Moneything, the darling of the peer to peer lending world, has operated a default free lending business since it opened its doors in 2015. But as the company aged, defaults were inevitable. As of October 2017, Moneything has two loans in default of which I hold one of them.
My defaulted loan occurred in June 2017. Moneything communicated with the borrower and felt appointing loan administrators was the best move for lenders. I liked the way Moneything made this decision swiftly. It has been proposed that the property be placed for sale and as of October 2017, the loan remains in recovery.
Another recent car loan which fell into default was settled and recovered promptly.
Moneything sends lenders a brief change in status loan email when a loan defaults. More detailed information can be found on Moneything’s website under the “update” tab on each loan page.
Octopus Choice: 16 active loans, 0 loans in default
Octopus Choice is very much a portfolio type investment. You invest money and it’s automatically spread across multiple loans. Octopus Choice provides very little information regarding defaults on their website but as far as I know, none of my loans are in default.
Property Moose / Property Partner
Since these are property equity share investments owned by investors, there is no default process.
Ratesetter operates a portfolio of loans to where lenders assume the same risk no matter whether they have invested in 1 loan or 1000 loans. Defaults are handled in the background so lenders have no information or involvement with the defaults. Default losses are shared equally amongst all lenders and are covered under the Provision Fund rather than taken individually by the loan holder.
Rebuilding Society: 0 active loans, 3 loans in default
The first Rebuilding Society loan I invested in is currently in default and was a punishing lesson on diversity. I invested far too much money into the loan due to my inexperience and I paid the price for doing so. The loan was unsecured with only a personal guarantee, which I view as somewhat worthless. The loan defaulted in late 2015. The borrower has made a few repayments since default but for the most part, I don’t expect financial recovery of the loan.
My second defaulted loan, I believe was taken fraudulently since the borrower hasn’t made a single payment since the loan was drawn down in October 2015. The borrower since filed for insolvency and the loan was written off as a bad debt in April 2017 with no recovery.
My third unsecured loan defaulted after only two payments, the second being almost one month late. The borrower had taken three additional loans with another peer to peer platform leading me to once again wonder if fraud had occurred. The company then proceeded to wind down. Since the loan is unsecured, I expect little in the way of recovery.
Three great lessons in why you should be careful investing money into high interest unsecured peer to peer loans; and when I say unsecured, I mean anything other than property and assets that can easily be sold. Most debentures and personal guarantees are worthless.
Rebuilding Society sends intermittent default update emails to lenders and as of October 2017, their website had updated my loan information on June and July 2017. Defaulted loan information can be found on your main account dashboard under the “loan updates” tab and also by clicking the “est. loss” and “deductions” sections.
You can read an article regarding Rebuilding Societies recovery process here.
Unbolted: 100+ active loans, 15 loans in default
I have experienced several defaults on Unbolted but they were handled effortlessly, many times I didn’t even realise the loans had defaulted. No notifications of defaults were given until the loan assets were sold at auction and a recovered loan email notification was sent. Unbolted assets are jewelry based, so selling and recovery isn’t so much of an issue as compared to property.
Unbolted provides regular loan updates by going to your main account dashboard, then clicking the “my portfolio” menu item and clicking the “overdue loans” link.
Wellesley & Co.
Wellesley also operates a portfolio of loans to where lenders assume the same risk no matter whether they have invested in 1 loan or 10000 loans. Defaults are handled in the background so lenders have no information or involvement with the defaults.
Zopa: 137 active loans, 2 loans in default, 1 loan in collection
Zopa operates a portfolio of loans similar to Ratesetter. Zopa gives lenders full access to their entire loan book. Each loan shows the status and has comments regarding the status. A loan is considered in default after four months of missed payments. Zopa attempts to recover lost capital and interest and lenders receive any monies recovered less fees.
You can access loan default information through your investor dashboard by clicking on the “loan book” menu item and then clicking on the “view your loan book to see details of your loan contracts” item under “loan book overview”.
Phew….so that’s how all the companies I have invested through currently handle defaults. Some are better than others, but I’m sure that as the companies become more experienced, their default recovery will become faster and more efficient.
As you can see, default recovery varies drastically from platform to platform. There are many variables that determine whether you will experience a full return of capital and interest or a loss.
If you want to learn more about peer to peer lending, click here and receive my complimentary Top 5 Peer to Peer Lending Sites Report.
This article is for information purposes only and should not be considered as investment advice. Opinions expressed are based upon my investing experiences. All information was deemed to be correct at the time of writing. Peer to peer lending contains risks, so never invest more than you can afford to lose.