# P2P Lending - What Has Your Experience Been Like ?



## MrEarl

Hello,

I have done some P2P lending across a couple of the Irish platforms and also, I have read some discussions on P2P lending and individual experiences, over on Boards.

Overall, my experience has been reasonable (spread across two P2P websites, with over 140 active loans), however I would caveat that by mentioning a few things:


My "real life" brings some relevant experience to the table, when it comes to lending to SMEs.

I have been somewhat conservative when lending into the P2P sector, by not lending to what I see as higher risk borrowers, tending to avoid borrowers who frequently appear looking for new loans, and generally only lending for a maximum of 2 years.
My experience with the P2P providers that I have dealt with has been "mixed". 


Financial information for borrowers is limited, and sometimes out of date.  Perhaps more importantly, there is no information provided on the parties providing the personal guarantees for the loan.

Lending rates appear to be dropping.  I think this is being driven by two things, firstly some of the P2P websites (wrongly) trying to offer lending rates similar to Banks, and secondly, more investors getting into P2P - resulting in demand outstripping supply for good loan opportunities and by extension, rates are being forced down.

Communications vary, with some reasonable 1-2-1 interaction when I have looked for it, but not much in terms of general updates on how loans are performing (this is a particular concern, when loans fall into arrears).

What exactly is being done to deal with loans in arrears is unclear. There's a clear deficit in the level of communication being provided and by extension, one loses confidence in what the P2P provider is actually doing to collect arrears or enforce security.
If things continue on their current course, I would think it's most likely that I will reduce my involvement in P2P significantly, given the risk may not be correctly priced anymore etc.

Anyway, that's a summary of my own experiences. 

I would love to learn how other people here are getting along, what tips or traps they've discovered etc. ?


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## Negotiator

Interesting question Mr Earl. I think you've touched on a few important points ie- that the rates don't reflect the risks and also what's being done to collect Arrears etc. 

I have actually been a borrower from one of the P2P platforms for 2 companies over the last couple of years and I have to say in comparison to banks they are a pleasure to deal with. Even though my bank was offering a rate at 3% lower than the P2P loan, I actually chose the higher rate with the P2P platform.....I never thought I'd see the day where I'd chose to payer a higher rate for a loan. The simple reason is the banks have gotten so bureaucratic it's a complete nightmare and takes forever to get to drawdown. 

All my loans are fully up to date and will be fully repaid soon so I can't comment on the arrears aspect. However with regards to PGs and the information collected by the directors etc, I don't recall having to give any information other than sign the PG and the usual KYC docs etc.

To be fair, I wouldn't approve giving my personal information out to hundreds of strangers. That said, I can see how a lender would want to know the info about who's behind the PG.

All that said, I think it comes down to this very simple fact.....if the loans goes sour I think you're pretty much goosed as a lender. PGs are notoriously difficult to chase and more often than not just leave the lender/plaintiff with even greater costs for having tried to chase the PG. Hence why I think your observation about the risk being under-price is accurate. 

One other point I think is worth mentioning, no P2P platform has really been tested. They really only took off at the height of the recession (generally the best time for startups and solid  SMEs to grow etc) so my point is that they actually haven't been tested yet in my opinion. I can see some serious carnage in a major downturn in the P2P arena and it won't be pretty because a lot of individuals are gonna take a serious bath.....something many of the lenders won't be able to stomach. The banks are obviously much better equipped under the heading of risk evaluation.

Just my 2 cents!


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## MrEarl

Hi Negotiator,

Given your personal involvement, I won't ask you any questions regarding your own experience (despite the temptation ).

For those who may be interested,  here  is the most recent arrears report from Linked Finance.  I must admit, I'm surprised the arrears are not higher.


.


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## Daddy Ireland

Thanks Mr Earl for starting this thread.  I have been contemplating getting into this and at the research stage and I'm sure this topic will be popular and prove very helpful all round.


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## RedOnion

MrEarl said:


> I must admit, I'm surprised the arrears are not higher


Look at their statistics re loans issued in 2015, rather than the total book. >4% default rate, and not all those loans are due to be repaid yet.


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## Negotiator

The real question really is what the expected default rate will be when things take a significant turn (which is inevitable after several years of significant growth). Will that figure jump to greater than 10% or even 15%, or perhaps even higher again. Only time will tell really as P2P lending is quite different to banks in that banks are much better geared up with regards security etc. 

My guess is though it will be carnage. If it was 2008, it would have been curtains altogether in my opinion!


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## MrEarl

RedOnion said:


> Look at their statistics re loans issued in 2015, rather than the total book. >4% default rate, and not all those loans are due to be repaid yet.



I still consider it low, in comparison to what I'd expect.

Not sure how closely you've looked at LF, but if you look at the credit ratings they apply to cases, and how their internal ratings drive their auto-bid system, you'll see where I'm coming from


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## newtothis

MrEarl said:


> I still consider it low, in comparison to what I'd expect.



Just out of curiousity, what would you expect?

Also, are there any published figures for banks for comparable loans?


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## MrEarl

newtothis said:


> Just out of curiousity, what would you expect?



Based on my personal view of the quality of borrowers promoted on Linked Finance over the last say 18 months, regular notifications of borrowers missing payments, and my perception of how the arrears cases have been dealt with to date, probably 7%-8% on Linked Finance.

I would expect that figure to hit double digits in the next 18-24 months, assuming no significant and prompt changes in how money is lent on Linked Finance and other P2P platforms.  I also agree with Negotiator, that things will go very badly wrong (excess 50% hardcore arrears, problems enforcing PGs etc.) if there's a recession in the years that follow.

To give a little credit, Linked Finance have recently hired a new head of credit and also, a full time arrears person, so perhaps they have come to similar conclusions to myself and are going to start taking some preventative measures.  Time will well no doubt 



> ...Also, are there any published figures for banks for comparable loans?



Not for the general public (only in house), you are left to rely on the trading updates that PLC's release from time to time.[/QUOTE]


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## RedOnion

MrEarl said:


> a full time arrears person,


I saw that. Now, why would they need someone full time to manage arrears, when their reported arrears is so low?.
Easiest job in the world!


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## MrEarl

RedOnion said:


> I saw that. Now, why would they need someone full time to manage arrears, when their reported arrears is so low?.
> Easiest job in the world!



Perhaps they know something that we don't ?


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## tom1ie

has anyone tried lending on mintos?
 i've just transferred a small amount into my account to give it a try. So i'm going with the plan of investing in loans at greater 12% or greater with a guaranteed buyback after 60 days from the loan originator. im planning on going for max 1 month loans and investing the resultant amount back into another 1 month loan. 
The max i invest per loan is 10 euro.
I know there's a risk the whole p2p industry could be heading towards a large correction, but i don't see that happening for another few years yet.


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## cremeegg

MrEarl said:


> My "real life" brings some relevant experience to the table, when it comes to lending to SMEs.




You don't work for an Irish bank then.


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## cremeegg

I cannot get my head around why anyone would put money into this. Surely if you advance money in this opaque way you should expect some potential for major upside. 

Are the risks pooled or is the lender exposed to specific companies ?


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## tom1ie

the way it works is loan originators put a loan that they have already funded to a borrower, onto the marketplace, some with a buyback guarantee after 60 days and some without. You can then buy a small share of that loan. so for example there are 10 shares of 10 euro from an originator that an investor can invest in.  
the rates on offer vary from 10-17%.


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## Zebedee

Have any of you read about the experience of Lendy in the Uk? Apparently (per FT) it is being sued by a borrower who was promised a follow on loan which Lendy could not deliver. If my understanding is right the existing lenders are on the hook for legal expenses plus further loans. There seems to be a “look through” the platform to the existing lenders.


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## Brendan Burgess

I would say that the rate of default is likely to rise substantially now. 

Brendan


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## MrEarl

Hello Mr Burgess,

I would agree with you 100%.

Any investor who was using the "Autobid" system on LF or other platforms, would be wise to review their current settings.


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## Leo

MrEarl said:


> Any investor who was using the "Autobid" system on LF or other platforms, would be wise to review their current settings.



Received a few emails from them over the past week looking for people to support their new short term working capital loans for struggling businesses. Sound like these will get less scrutiny than their already questionable standards.


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