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4thWay PLUS Ratings: March 2021 Changes
Loanpad now rated
Loanpad* (read review) has earned the top 4thWay PLUS Rating of 3/3 “Exceptional” on its Premium and Classic accounts/IFISAs, after its history reached enough maturity for our ratings calculations to be meaningful.
The 4thWay PLUS Ratings are a measure of both risk and reward. Loanpad has the lowest interest rates (rewards) of all rated P2P lending and IFISA providers, paying 5.5%-6.5% in its two accounts. And so it is the extremely low risks that enable it to get the top rating.
Loanpad also has a 4thWay Risk Score of 4/10. (The lower the better.) It will undoubtedly improve to 3/10 as its loanbook matures and grows further, when we can rely even more on its history and need to make fewer conservative adjustments in our background calculations. This means we'll expect write-offs of under 2.5% even in a major recession and property crash, which will easily be covered by the interest earned. Frankly, I believe the most likely scenario would be no losses for lenders to offset whatsoever, even in such extreme times.
Next month, 4thWay's specialists will be re-assessing the ratings for Assetz Capital and Lending Works*. Don't miss that update – sign up to our free newsletter!
How to use our ratings
It's super important that you understand what our ratings mean and what they don't mean, so here's just a brief overview.
Our top 4thWay PLUS Rating means that, if you start lending your money now, we calculate that bad debts across a basket of at least six rated lending accounts will be more than covered by interest earned by lenders overall, even when the loans are impacted by a severe recession and property crash similar to 2008. It also means that we calculate that there are too few (if any) outsized loans to lead lenders into an overall loss through some of those turning bad.
All the 4thWay PLUS Ratings assume that lenders sensibly lend for at least two years and keep lending until borrowers repay naturally, even through a downturn. This means the ratings assume you don't sell your loans early in a crisis (potentially through fear or panic), which cuts off the interest you're earning on your good loans. So to some extent the ratings assume lenders keep their heads. Feedback indicates that most users of 4thWay research and ratings have done so!
While P2P lending as a whole has held up even better than we expected during the pandemic so far, lenders need to set their expectations to earn less when you lend during a very poor economy, even on rated lending accounts. Some of your lending accounts will return less than others, but this doesn't necessarily mean that the lower-performing lending accounts were bad ones. Each economic downturn impacts different types of lending and different geographical areas in different ways, which is just one of the reasons to spread your money around. Next time, it might well be a different lending account that is hit worst.
The 4thWay PLUS Ratings link lending interest rates to the losses from bad debts. No risk other than bad debts are directly taken into account by the ratings. However, higher ratings are indirectly linked to lower risks of all kinds. This is because we only run our ratings calculations on lending accounts with a big enough history and that provide us with a great deal of information, and these accounts correlate very strongly with excellent performance versus all risks.
The ratings have nothing to do with your ability to sell loans early. Indeed, we believe lenders who really feel they might want their money back early, especially during a downturn, should lend less or not lend at all, because investments are not easy-access savings accounts.
Finally, ratings are not guarantees. It would be ridiculous to pretend we can always get it right. We have a perfect record with our 4thWay PLUS Ratings so far, but we do expect that at some points in time lenders who follow all the best lending practices will make a collective overall loss on the occasional 4thWay rated account. But we intend to ensure this is an extremely rare event, and one that usually corrects itself very quickly!
For more on the 4thWay PLUS Ratings in general, and for what the 1/2 and 2/2 4thWay PLUS Ratings mean, read About The 4thWay PLUS Ratings And 4thWay Risk Scores.
4thWay pages linked to above:
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 Loanpad 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.