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Welcome to our new discussion boards for individual lenders, a feature frequently requested by many of 4thWay's happy users to complement 4thWay’s expertise and enhance our service further.
Please use the boards to ask other individual lenders questions and to learn from each others’ experience in using P2P lending/IFISA platforms.
There are just three rules I'd like to highlight for an enjoyable and friendly experience:
Businesses: we do not accept spam comments and advertising through the 4thWay boards.
My top three tips to consider when taking advice through the boards
1. Don't get cocky.
There is no level of ability and confidence as a lender that ever justifies lenders selecting a small portfolio of loans and putting large chunks of money into few loans or into a single peer-to-peer lending platform. I already have talked to plenty of lenders (and money managers) who have done this and regretted it.
I imagine that if you debate an attractive loan for hours through the discussion boards it will be easier to convince yourselves that you could - and should - overexpose your wallet to it.
As 4thWay's chief risk modeller says, if he had advised one of his high-street bank clients to lend a whopping 5% or more of their deposits in a single huge loan, he would not have lasted long in the industry. The same applies to individuals.
You might instead choose to spread your money very widely across hundreds or thousands of loans, even if you believe you are good at selecting better-than-average loans.
2. Use personal stories alongside other evidence to assess risks and opportunities.
You can learn a lot from other lenders' interactions with P2P lending and IFISA providers, and from other people's analysis of the platforms' borrower-selection methods, technology and so on.
Where personal stories are less useful and potentially even detrimental is when you allow yourself to be influenced by the results one or two people have had through a platform. There needs to be a lot more meat to a decision to use a specific platform than reading from someone else: “I’ve had good/bad results here therefore invest/avoid.”
Look for more complete results figures from the platform, and develop a deep understanding about the people behind it and how well they perform key duties, such as approving loans, monitoring them and recovering bad debts, and an instinct for when something is fishy. 4thWay and other board users can help you with all of that.
3. Some types of lending has high bad debt that takes ages to recover.
Some types of lending, such as certain types of bridging loans and asset-backed lending, typically have a profile that can be quite frightening if you aren't aware of it before you start lending: a high proportion of loans fall late, often 10% to 25%, and then a good portion of those become bad debts.
With this kind of lending, you are supposed to be compensated for this with decent to high interest rates. And the loans are usually supposed to have excellent recovery of bad debts - although you must expect and be prepared for recoveries to take a very long time because that can be typical as well.
I have seen lenders discouraged from using certain P2P lending platforms, because those platforms generally have a high proportion of debts that go bad compared to others. They might be right and it might well be a problem - but that fact alone is not usually enough information to assess the risks.
Before taking sizeable bad debts as a reason not to lend through a platform, look into whether that type of lending typically has high bad debts - suggesting the platform might be normal in its chosen niche. In which case, you need to look into how rapidly the platform acknowledges and then takes action to recover bad debts - speed is a great indicator of how well problem debts will be recovered.
You also need to look at its record on older loans - does it have an excellent recovery rate on those loans, where they have already had a long time to force a sale of property and get lenders their money back?
Finally, don't overlook the absolute basics of checking out how thoroughly or conservatively the platform values any security and any caps they put on the amount borrowers can borrow compared to their security.
Good luck and enjoy your discussions!