Lending Works Review
Below is the latest Lending Works review given by one of 4thWay's specialists.
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When did Lending Works start?
Lending Works started in early 2014 and has completed £220 million in.
What interesting or unique points does Lending Works have?
Lending Works* has strong defences against losses and no lender has lost money.
Your risks are effectively spread across thousands of borrowers, since risk is pooled across a very large number of loans. Therefore, you cannot be the victim of extreme bad luck in the basket of loans that you're lending in.
It has a, called Shield, to cover expected losses, being 14.91% of the size of the outstanding loans. That's made up of £1,300,000 cash in the pot and £10,221,858 due to be paid by existing borrowers through their daily, ongoing loan repayments.
Existing Lending Works lenders were recently surprised by reductions to the lending rates on their existing loans, in order to cover higher-than-expected bad debts. At the same time, Lending Works simultaneously improved its forecasts and bad-debt planning, making another such adjustment in good economic times a lot less likely.
How good are its loans?
Lending Works' personal lending has been as profitable to individual lenders as it has been to modern banks, with a profit after bad debts being steadily around 4% to 5%, on average.
Lending Works is no longer a smallsite, as it has been approving 700 loans a month in early 2020. As it has grown, its borrower mix necessarily now includes some borrowers further up the risk scale, as expected. Particularly in December 2019, it made changes to pay a lot more money into its fund to cover the higher risks.
Lending Works has so far proven adept at selecting borrowers. Recently it improved its setting of borrower interest rates considerably. Borrower rates have been increased, and not just for the highest-risk borrowers. These higher rates are used to pay more to Shield.
How much experience do Lending Works' key people have?
Lending Works* has plenty of in-house experience related to approving loans and setting the policy for doing so. It also recently hired a senior credit-risk specialist from one of the high-street banks. Her highly relevant experience in is probably what has driven the improvements in Lending Works' processes, forecasting methodology and interest rates.
In 2018, Lending Works brought its bad-debt collections processes in-house. While it still outsources bad debts after two months of late payments, I hope this more hands-on approach will improve its somewhat weak record in recovering bad debt. That said, lower recoveries are being counterbalanced by itsfund and strong measures to spread the risks.
Lending Works review: lending processes
Lending Works* conducts all of the standard borrower checks that should be carried out for . I'm glad to see that it uses one of the more reliable credit-reference agencies, despite the higher costs. Indeed, it now does dual checks using more than one agency, which is the best approach.
It appears to set high standards. Borrowers' average income is high at £43,000, most borrowers are homeowners and they are generally over 25 but younger than 49. The level of bad debts has been very consistent for three years, which demonstrates it understands its borrowers and correctly assesses them prior to making a decision on whether to lend.
Four in ten borrowers are consolidating debt, which is not so good compared to borrowing for a car or home improvements, but it's pretty standard and within expectations.
How good are Lending Works' interest rates, bad debts and margin of safety?
It's a close call, but its interest rates on its Growth Account are high enough and thefund big enough to protect lenders from heavy losses during a severe recession that is similar to the one we experienced in 2008. That's based on 4thWay's international Basel .
Lenders who lend and re-lend patiently through a downturn and out the other end further improve their chances of coming out with positive results.
Lenders using the Flexible Account are likely to experience small, temporary losses in a recession similar to 2008, although not in smaller recessions.
Has Lending Works provided enough information to assess the risks?
Lending Works* is extremely transparent with us, providing a lot of data, access to its people, and answers to 4thWay's incessant questions. It enables us to analyse each individual loan's performance using many risk modelling and investing techniques.
For individual lenders, it also provides a lot of clear information and statistics on its website. At some point in the coming months, it will need to provide more statistics to lenders and 4thWay showing the performance of its renewed Shield, as the 2020 batch of loans starts to mature a little.
Is Lending Works profitable?
Lending Works still isn't profitable, as it continues to grow its business. However, it received another £3 million in backing in mid 2018 from respected investors, taking total investment in the company to more than £9 million since 2014.
What is Lending Works' minimum lending amount and how many loans can I lend in?
For just £100, lenders spread their money across thousands of loans.
Does Lending Works have an?
Lending Works' lending accounts are available as.
Independent opinion: the opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by the ESMA or the FCA, and does not provide personalised advice. The material is for general information and education purposes only and not intended to incite you to lend.
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