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Lendwise Review

Impressive results and much needed diversity lending to fund postgraduate studies, in a P2P lending market overcrowded with property development lending.

Lendwise logo in the Lendwise Review 4thWay PLUS Rating of 3/3

Lendwise's IFISA And Classic Account has received an Exceptional 3/3 4thWay PLUS Rating.

These loans are expected to pay lenders around 7.80% after bad debts.

Visit Lendwise* or keep reading the Lendwise Review.

What does Lendwise do?

Lendwise is one of just two UK-based P2P lending companies that lends to fund people’s education. It’s the only one that funds large sums to cover tuition fees, focusing exclusively on postgraduate and professional qualifications.

Borrowers studying full time accrue interest on their loans during their one- or two-year courses. Afterwards, they start repaying their loans and interest to lenders on a monthly basis. Borrowers on part-time courses have no grace period and start repaying immediately.

The average loan size is about £15,000.

When did Lendwise start?

Lendwise* started at the end of 2018 and lending through its online lending platform has now reached £48 million.

What interesting or unique points does it have?

Lendwise fills a gap left by other quality P2P lending companies focused on personal loans, because they have all shifted their businesses away from the P2P model.

More than that, Lendwise’s borrowers are, on the whole, likely to be uniquely ambitious, driven, and understanding of their responsibilities. Lendwise could therefore turn out to be an upgrade on its predecessors.

These loans have an unusual repayment profile. Typically, the borrower accrues interest without paying anything for one year, but then is offered six to eight years to steadily repay the loan. With few loans repaid early, you earn interest for a long time on each loan.

The few loans that suffer problems also have an unusual profile for personal loans – in a good way. It typically takes two to three years for loans to fall late or turn bad, so that you earn more interest before any start to have issues.

Recovery of debts that turn bad is also better than you usually expect from personal lending, which further improves overall returns.

Lendwise review: how good are its loans?

The proportion of borrowers Lendwise accepts is high compared to other personal loans – but I think in this case understandably so.

The applicants for these very specific loans are much more likely to be those who’ll be accepted. This is not least because they have to demonstrate that they have earned a place on a course already and because the bulk of the loan payment is to be paid by Lendwise* directly to the university in fees. The university repays the fees if the borrower drops out.

Yet it is of course the borrower, and not the university, that’s contracted to pay off the loan and interest. Clearly, these borrowers intend to go through with their studies and earn a higher income at the other end.

Borrowers are highly motivated, having already graduated and now pushing for courses at universities where Lendwise is able to model their likely future incomes. Some limited evidence suggests that borrowers generally go on to earn at or above the projected incomes.

Most universities are in the UK. For Lendwise to consider an overseas university, it has to be of particularly high regard. This means mostly top business schools and high-ranking universities.

Lendwise’s loans have performed very well and the proportion of loans that have suffered bad debts is on the low side.

The recovery of bad debt is better than we can expect from personal lending. All this points to good quality borrowers.

About 15% of borrowers so far have been to non-UK nationals. These loans have a comparably good record versus loans to UK borrowers.

How much experience do Lendwise’s key people have?

After nine years of assessing P2P lending companies and seeing their following results, it’s not easy to reassure us when prior experience is limited, but it does happen from time-to-time.

The named team has demonstrated little direct prior experience in terms of assessing loans, credit-risk policy and analysis, or recovery of bad debts. Backgrounds are also not in consumer lending, for the most part.

Unusually for that situation, the key team does still impress with their knowledge, rationality, clear demarcation of responsibilities, and their realism and down-to-earthness. The focus on data in particular reassured, as did the CEO’s sharp mind, picking up on every subtlety in our discussions.

In addition, they now have five years’ experience at Lendwise* with nearly 2,500 loans by the start of 2024. That’s one of the upsides of approving lots of smaller loans: you can reasonably quickly acquire knowledge from data, and we see evidence of a good learning curve in action.

The key people have other financial, banking, investment banking or accounting experience, and have worked in roles that saw exposure to money lending. This has some value, but it shouldn’t be overweighted.

They’re supported by some junior people, for which we have few details as we don’t usually interview lower down, but at least one of which is said to have at least some consumer lending experience.

In summary, we’d like to see a lot more relevant prior experience, but they impressed as well as they could do without it, and they have used the past five years well to gain experience.

Lendwise review: lending processes

Lendwise are looking for responsible students, because, if the applicants have arrears and bad debts, they believe the “solution is not access to more debt.”

As with standard personal loans, Lendwise’s loan-application assessments begin with credit data and affordability, using mainly one credit-reference agency. This is normal, although we do prefer to see at least two, including one from Experian or Equifax, which we considered to have the best data when we did a data review a few years ago.

Their assessments are set apart from other lenders by looking at where the borrower has previously studied and what they studied, relevant work experience, and the baseline salaries already achieved and sustained. Looking to the future, they consider ranking tables of universities where the borrower is about to study again and typical time to get a job after studying there.

Lendwise* models future earnings potential, based on historical outcomes for specific school and courses, as well as on broader earnings data for postgraduate degrees and from Lendwise’s own lending data.

The three on the credit committee, who make the final decision on approvals, usually have to agree, or it’s a No. This is good, although we do prefer to see that the committee always has to be unanimous.

Their processes for going after bad debts is well-structured, and they have sufficient staff to work on them. They are reassuringly quick to recognise arrears and other problems as bad debts.

Based on trajectories so far, I ultimately expect 50%-60% recovery of bad debt, which is a further improvement of my estimate in 2022 and the start of 2023. This is superior to what you usually get from personal lending with good bad-debt collection practices, so it just further adds to stable overall returns.

How good are Lendwise’s interest rates, bad debts and margin of safety?

By the start of 2024, Lendwise* lenders have so far earned three times more interest than there are bad debts. Over the long term this will improve further. Even on loans that are live at some point during any future severe recession, most lenders are likely to be highly satisfied with their results.

Results between lenders will vary, even when spreading across a large number of loans, possibly by several percentage points. But there’s a lot of interest cover to cope with bad debts.

Critically, Lendwise is also approving more than enough loans for lenders to sufficiently spread their risks, which is very important with these kinds of loans.

4% of loan amounts issued in its first two calendar years (it’s now had five calendar years) are currently bad debts. Loans issued in those years have already paid four-and-a-half times as much in annual interest than there are bad debts, and this record has been improving quickly as good loans continue to repay and more recoveries come in.

In loans that turned bad long enough ago for us to see recoveries, Lendwise has managed to recover half of the defaulted debt and interest due, which is good for personal loans.

In more recent batches of loans, just four to five loans out of every 100 are likely to suffer issues of any kind. Since many of those loans will already have had repayments, and many of the rest will recover a lot of the outstanding amounts, the actual pound amount of bad debts at least in a normal economic environment are likely to be just a few percentage points.

In the event of a new – or renewed or redoubled – severe economic downturn, losses after recoveries might breach 6% overall in pound terms, which is perfectly acceptable. Those one-off losses will easily be covered many times in interest earned every year throughout the life of the loans, as they’re repaid over about five or six years.

Has Lendwise provided enough information to assess the risks?

Lendwise* has committed to providing us with highly detailed data on the performance of all of its loans on a monthly basis. It has also given us a huge amount of information as well as access to its key people.

It has been candid with us in ways many aren’t, and this honesty and openness shows good character.

Information provided directly to its website users and lenders is also very good, when comparing it to its competitors. This includes its statistics page and its updates to lenders when they have any loans that have turned bad.

It could do with adding a little more information for its website users on the relevant skills and prior experience that it does and doesn’t have.

Is Lendwise profitable?

Lendwise* isn’t profitable. It told us early in 2023 that it expects to make money from now onwards, but we await to see what actually happens.

What can you tell me about Lendwise’s cybersecurity?

Sucuri’s soft security probe for us of Lendwise’s cybersecurity shows its website and lending portal is secure and has no obvious concerns in terms of malware, out-of-date technology, its firewall or its coding. It’s also marked as clean by Google Sage Browsing, McAfee and other internet and security technology providers.

Is Lendwise a good investment?

I think that Lendwise* is a good investment, especially for those who understand that they need to spread their risks across different kinds of prime borrowers, not just property borrowers. Don’t underestimate Lendwise.

What is Lendwise’s minimum lending amount and how many loans can I lend in?

The minimum you can put into the Lendwise Classic Account is £200, with a minimum of £10 per loan. In the IFISA, the minimum you can put in, or transfer in, is £1,000, with the minimum per loan £10.

A variety of data and figures supplied to us by Lendwise indicate that lenders are currently probably finding it easy to spread their money over a large number of loans well within the course of a year. You can set maximum loan amounts per borrower when auto-lending.

Auto-lend options also include, among other things: the length of the loan, type of loan, field of study, interest rate, and whether the loan is new or being re-sold by another lender.

Does Lendwise have an IFISA?

Yes, Lendwise’s account is available as an IFISA.

Can I sell Lendwise loans to exit early?

Yes, you can sell your loans at their outstanding value for a 1% fee, provided other lenders buy your loan parts off you. You can’t sell loans that have turned bad or that are currently in arrears.

In a well-diversified portfolio, expect very roughly around half your money back by year four or five, and most of the rest within two to three more years.

Some broad statistics indicate that early repayments are rare when compared to other personal loans, so you need to be prepared to take some time to exit.

You might be able to speed your exit in advance by trying to get in on more loans due in shorter periods, perhaps by using the auto-lend settings.

Thanks for reading the Lendwise Review! Visit Lendwise*.

Lendwise Classic Account: key details

Interest rate after bad debt

7.80%

Here we show the P2P lending site's own estimate (or 4thWay's if theirs are not appropriate)

4thWay Risk Score

5/10

Lower Risk Scores are better. How is this different to the 4thWay PLUS Rating?

Description

£48 m in loans to fund postgraduate studies since 2018, with auto-lend, auto-diversification & early exit. Available in an IFISA

Minimum lending amount

£200

Exit fees - if you sell loans before borrowers fully repay

1%

Early exit is not guaranteed. Usually, other lenders need to buy your loans

Do you get all your money back if you exit early?

Yes

Loan size compared to security value

Reserve fund size as % of outstanding loans

N/A

Company/directors lend alongside you/first loss

No

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The 4thWay® PLUS Ratings are calculations developed by professional risk modellers (someone who models risks for the banks), experienced investors and a debt specialist from one of the major consultancy firms. They measure the interest you earn against the risk of suffering losses from borrowers being unable to repay their loans in scenarios up to a serious recession and a major property crash. The ratings assume you spread your money across hundreds or thousands of loans, and continue lending until all your loans are repaid. They assume you lend across 6-12 rated P2P lending accounts or IFISAs, and measure your overall performance across all of them, not against individual performances.

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