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How New Ratings Have Shaken Up The P2P Lending Comparison Tables
When is a site allowed a rating?
All P2P lending sites and P2P IFISA providers that supply enough information about themselves, and that have a long enough history, are assessed to see if they can earn a rating.
We've listed the providers that have earned 4thWay PLUS Ratings below, with some information about how they are earning ratings and what's happened to them since we upgraded the ratings method. You can read more about them in our P2P lending comparison table and our IFISA comparison table.
They are listed below in order of the highest (best) 4thWay PLUS Rated account. In a tiebreak, we list the ones with the lowest (best) 4thWay Risk Score first. If it is still undecided, we have then prioritised the highest interest rate. If a provider has more than one lending account, it is listed in order of its best account.
If you need a reminder on what the ratings and scores mean in more detail, and more on how they are awarded, read About The 4thWay PLUS Ratings And 4thWay Risk Scores.
Summary of results
- Growth Street* has been pipped down two spots off the top rank by Landbay*, now in first, and Proplend* in second, due to a very slight uptick in the apparent risk of bad debts at Growth Street, although the risks there still appear very low.
- LendingCrowd* joins as a new entrant in the rated club.
- Funding Circle is no longer rated after withdrawing the key data needed.
Read about all of this below.
Description: £130m in residential buy-to-let loans since 2014, secured with reserve fund, auto-lend & early exit. IFISA available if you lend at least £5,000.
- +++ Rating on both its lending accounts – still the top rating on the combined risk-reward scale.
- 2/10 Risk Score on both its lending accounts – unchanged and extremely low (low score = good).
- Interest rates of around 3%-3.5% – roughly unchanged.
- 1st in comparison table – up from second.
Landbay* continues to grow and has hundreds of property loans, but still no missed payments, let alone bad debts. Its reserve fund to cover excess bad debts, and the type of lending (loans mostly to experienced landlords that are secured against property which is earning a decent rental income) will prove more than sufficient by itself to cover any future losses for lenders, even before you take into account the interest that lenders earn. The interest rates are not exciting, but highly appropriate and very satisfactory for the risks.
Description: £34.0m lent since 2014 secured on residential BTL & commercial property receiving rent, with early exit. Available in an IFISA.
- +++ Rating on both its lending accounts – the top rating on the combined risk-reward scale.
- 3/10 Risk Score on its tranche A loans – unchanged and fantastically low (low score = good).
- 7/10 Risk Score on its tranche B and C loans – unchanged.
- Interest rates of around 6%-10% – unchanged.
- Second in comparison table – up from third.
Between the quality and type of property security, and the excellent interest rates, Proplend's* tranche A loans are astoundingly attractive for the risks involved. Its tranche B and C loans are not quite as impressive, but don't be fooled: these are still top-rated loans. It can be tricky to diversify enough at Proplend due to the relatively low number of big loans, emphasising the usual need to lend across lots of peer-to-peer lending sites.
Description: £44m since 2014 in secured business overdrafts & loans secured on due customer invoices, with huge reserve fund, auto-lend, auto-diversification, & exit within 30 days.
- +++ Rating – still the top rating on the combined risk-reward scale.
- 3/10 Risk Score – risk level still fantastically low, but it has risen by one point from 2/10.
- Interest rates over 5% – reasonably steady and, we believe, very attractive for the risks. (£200 cashback currently available too – read here.)
- Third in comparison table – down from first.
Lender losses still look like a very distant prospect at Growth Street*, at least partly down to the huge reserve fund to cover bad debts, automatic diversification for lenders across all loans, plus the attractive interest rates for the risks involved of more than 5%.
The proportion of loans that have gone bad remains pretty low for these kinds of loans. Since they are secured on valued business assets the recovery of bad debt is considerably higher than in unsecured business loans or personal loans. However, recovery of bad debts has been slightly less successful than the models expected, which is why its 4thWay Risk Score has ticked up a point after our Basel tests.
Description: £50m since 2014 in secured homeowner & other property loans, cars, boats & fine wine, with auto-lend, auto-diversification & early exit. Available in an IFISA. MINIMUM INVESTMENT PER LOAN IS £10,000.
- +++ Rating on its senior loans – still the top rating on the combined risk-reward scale.
- ++ Rating on its junior loans.
- 4/10 Risk Score on its senior loans – unchanged and very low (low score = good).
- 7/10 Risk Score on its junior loans – unchanged.
- Interest rates of around 6%-10% – unchanged.
- Fourth in comparison table – up from fifth.
HNW Lending* has very high interest rates for the low risks involved on its senior loans. Some of the individual deals you can find here are extraordinarily attractive. The interest rates on its junior loans are appropriate, although the 4thWay Rating on those has one less + in it.
Description: £110m in personal loans since 2014, with large reserve fund, loan repayment insurance, auto-lend, auto-diversification & early exit. Available in an IFISA.
- +++ Rating on both its lending accounts – still the top rating on the combined risk-reward scale.
- 4/10 Risk Score on both its lending accounts – unchanged and very low (low score = good).
- Interest rates of around 4.5%-6% – roughly unchanged.
- Fifth in comparison table – up from sixth.
Of the peer-to-peer lending websites that purely focus on personal loans, I think Lending Works* has the best balance of risk and reward.
Its interest rates, low bad debts and substantial reserve fund are very attractive. In the event that the reserve fund is completely depleted, all lenders equally split losses between thousands of loans.
Description: £510m since 2013 in secured business loans, rental property loans, & short-term (bridging) property & development loans, with reserve fund, auto-lend, auto-diversification & early exit. Available in an IFISA.
- +++ Rating on all its lending accounts – still the top rating on the combined risk-reward scale.
- 4/10 Risk Score on its Property Secured account and 5/10 on its other lending accounts – unchanged and low (low score = good).
- Interest rates of around 5.5%-10% – roughly unchanged.
- Sixth in comparison table (up from seventh).
Assetz Capital very much focuses on getting good interest rates and the ability to recover bad debts. This means lenders should expect a high proportion of loans to suffer delays or problems, but Assetz Capital should be able to recover the vast majority of any debts that go bad.
The interest rates are attractive for the risks and delays involved, especially on the Manual Lending account and the Property Secured account. To a lesser extent, the modest reserve funds on the other accounts also help to contain risks. Watch that your money is being spread across many dozens of loans to contain the risks.
Description: £2.48bn in personal loans since 2005, with auto-lend, auto-diversification & early exit. Available in an IFISA.
- +++ Rating on its five-year lending account – still the top rating on the combined risk-reward scale.
- ++ Rating on its one-year account and its rolling (easier access) account.
- 4/10 Risk Score on all its lending accounts – unchanged and very low (low score = good).
- Interest rates of around 3%-5.5% – unchanged. (£100 cashback currently available too – read here.)
- Seventh in comparison table – up from 11th.
RateSetter continues to offer a basket of loans that is low risk in terms of the number and scale of bad debts. On the rewards side, the interest rates in its short-term accounts have now sunk low enough to reduce their ratings by one +. Those accounts still remain attractive for lenders, especially if you want to lend and re-lend for longer, but the best account is its five-year lending account.
Description: £3.3bn in personal loans since 2005, with auto-lend, auto-diversification & early exit. Available in an IFISA.
- +++ Rating on both its lending accounts.
- 4/10 Risk Score on its Conservative lending account – unchanged and very low (low score = good).
- 7/10 Risk Score on its Balanced lending account – loans – up one risk point.
- Estimated interest rates after bad debts of 4%-5% – unchanged.
- Tenth in comparison table – down three places.
Zopa continues to maintain top ratings due largely to charging sensible interest rates from three to 33 percent depending on the borrower.
The 4thWay Risk Score for its Balanced lending account has ticked up because for many months we have not seen an update on a piece of data that we ideally like to see, so we make cautious assumptions about it. This has a modest impact on the score.
Your money is spread across at least 50 borrowers, which is not sufficient for personal loans. If you re-lend your money on a monthly basis you might end up in far more loans quite quickly, but you should, as always, diversify by lending across other P2P lending sites too.
Description: £34m since 2014 in business loans, with early exit. Available in an IFISA.
- ++ Rating on its Self Select Account – new.
- 7/10 Risk Score on its Self Select Account – new.
- Estimated interest rates after bad debts of 7%-8%. (£100-£500 cashback currently available too – read here.)
- 13th in comparison table – up from 26th. NEWLY RATED
Similar to Funding Circle in all ways, LendingCrowd* is the latest peer-to-peer lending site and IFISA provider to receive a 4thWay PLUS Rating. LendingCrowd is now the only rated P2P lending site with a focus on unsecured small business loans.
LendingCrowd is only just old and mature enough now to be assessed for a rating. Since it still has some newness about it, we add standard penalties to our calculations. Without those penalties, LendingCrowd would have a +++ Rating and 6/10 Risk Score, which means it is currently on track to match or even perhaps slightly top the last known Risk Score that Funding Circle had, if it continues its record so smartly. (Read about Funding Circle below.)
It's an alternative or addition to your other lending, particularly if you want to throw in more unsecured business lending to your mix (there aren't enough P2P lending sites offering these sorts of loans) and if you would like to pick such loans for yourself.
LendingCrowd's two automated lending accounts have not earned PLUS Ratings, due to the lower level of interest paid, although these accounts will also earn a rating if LendingCrowd maintains its record until we are able to remove all the penalties for its relative newness.
Description: £3.4bn lent since 2010 in mostly lower-risk & some higher-risk business loans, with auto-lend, auto-diversification & early exit. Available in an IFISA.
- Funding Circle no longer publishes the information we need to assess it for a 4thWay PLUS Rating or 4thWay Risk Score. Both its accounts have therefore lost their ratings and scores.
- N/A in comparison table – down from 12th.
Read more about this in Funding Circle Buries Its Data: Should Lenders Be Worried?
Most peer-to-peer lending accounts and IFISAs are still unrated
Over half the P2P lending accounts in our comparison tables are still not rated, either due to a history that is too short, not enough data or results that aren't good enough.
Why are ratings top heavy?
Excluding the unrated accounts, the majority of P2P lending accounts and IFISAs that have earned a 4thWay PLUS Rating have the +++ Rating, the top rating.
Why is that? We think there are three reasons:
1. Better P2P lending sites give us the information we need to rate them
We believe one of the big reasons is that the P2P lending sites that have been around the longest and that have been willing to provide us with the comprehensive data we need are bound to be higher quality, on average. Weaker businesses refuse to provide the information.
2. Smaller businesses can pick better borrowers
It is also easier to pick and choose higher quality loans when you are small, and often nimble, compared to banks. This is still the case for most peer-to-peer lending and IFISA providers.
3. Supply and demand: lenders still wary
Even more than that, there is an imbalance in supply and demand: that's the supply of cash (from lenders) and demand for cash (from borrowers). Borrowers have been attracted to P2P lending more quickly than lenders. With more borrowers demanding cash than there is lender cash being supplied, this keeps interest rates buoyant, helping to keep the risk-reward balance very attractive.
In other words, the number of top-rated lending products will fall as more lenders get comfortable with P2P lending and lend more money. When that happens, we expect that three PLUSes will be truly exceptional compared to the rest.
When will we see low-rated lending accounts?
While lots of peer-to-peer lending sites have failed to earn a rating at all, currently, no peer-to-peer lending site has earned the lowest possible rating of one PLUS. We expect that some IFISA and P2P providers will end up there as lenders become more comfortable with the risks, supply more cash, and force interest rates downwards.
That always happens in cycles, in all types of investments: the less risky something is, the more investors pile in and the more willing they are to accept lower rewards. At these times, the P2P lending sites that don't apply the brakes to both lending and plummeting rates will risk their lenders losing money.
So when you see a number of one PLUS Rated P2P sites appear, this could be a strong sign that the overall market, especially non-rated accounts, is bubbling too hot – and interest rates have fallen too low in many cases. So keep an eye out for the ratings of your chosen lending accounts.
Read about How We've Improved The 4thWay PLUS Ratings.
Other links to 4thWay web pages that were in this article:
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.
The 4thWay PLUS Ratings are calculated using objective criteria that can be measured and improved on over time, although no rating system is perfect. Read more about the 4thWay® PLUS Ratings.
Independent opinion: 4thWay will help you to identify your options and narrow down your choices. We suggest what you could do, but we won't tell you what to do or where to lend; the decision is yours. We are responsible for the accuracy and quality of the information we provide, but not for any decision you make based on it. The material is for general information and education purposes only.
We are not financial, legal or tax advisors, which means that we don't offer advice or recommendations based on your circumstances and goals.
The opinions expressed are those of the author(s) and not held by 4thWay. 4thWay is not regulated by ESMA or the FCA. All the specialists and researchers who conduct research and write articles for 4thWay are subject to 4thWay's Editorial Code of Practice. For more, please see 4thWay's terms and conditions.
*Commission, fees and impartial research: our service is free to you. 4thWay shows dozens of P2P lending accounts in our accurate comparison tables and we add new ones as they make it through our listing process. We receive compensation from Growth Street, HNW Lending, Landbay, LendingCrowd, Lending Works, Proplend and RateSetter, and other P2P lending companies not mentioned above either when you click through from our website and open accounts with them, or to cover the costs of conducting our calculated stress tests and ratings assessments. We vigorously ensure that this doesn't affect our editorial independence. Read How we earn money fairly with your help.