Lending Works Review
Below is the latest Lending Works review given by one of 4thWay's experts.
4thWay's quick expert Lending Works review
Great risk-reward balance, large reserve fund, and insured loans
When did Lending Works start?
Lending Works started in early 2014 and has completed £180 million in personal loans.
What interesting or unique points does Lending Works have?
Lending Works* has strong defences against losses. Your risks are effectively spread across more than 10,000 borrowers, since risk is pooled between all existing loans. Therefore you cannot be the victim of extreme bad luck.
It has an unusually large reserve fund to cover expected losses, being around 4% of the size of the outstanding loans.
It also has a unique insurance to pay you if a borrower is unable to pay due to accident, sickness or unemployment. The insurance small print means that it doesn't pay out very often, but it could be useful for lenders when a recession, when more borrowers will lose their jobs.
How good are its loans?
Lending Works is more selective of its borrowers than you see at other personal loans P2P lending companies, which contains the number of loans that go bad. On the flipside, Lending Works has a poor record in recovering debts that do go bad.
Lending Works has another trump card to support loan quality for lenders: new lenders benefit from being spread across all existing loans that are in good-standing, as well as new ones. This means that new lenders benefit from older loans that have already weeded out many of the weaker borrowers that were unable to repay their debts. While it sounds like a technicality, it substantially improves the lending profile.
How much experience do Lending Works' key people have?
Lending Works has plenty of underwriting experience that is related to personal loans. It also has a credit-risk specialist, which is something we really need to see for this kind of lending, although the low profile that this person has at the company suggests, perhaps, that more could be done.
I'm not aware of any in-house staff member who is highly experienced in recovering bad debts. Lending Works will often outsource this activity to outside specialists, but considering its weak record in this area I want to see more prominence.
Lending Works review: lending processes
Lending Works* conducts all of the standard borrower checks that should be carried out for personal loans. I am glad to see that it uses one of the more reliable credit-reference agencies, despite the higher costs.
It appears to set high standards. Borrowers' average income is high at £34,000, most borrowers are homeowners and they are generally over 25 but younger than 49.
Four in ten borrowers are consolidating debt, which is not so good compared to borrowing for a car or home improvements, but it is pretty standard.
How good are Lending Works' interest rates, bad debts and margin of safety?
I believe its interest rates are high enough, with a large margin of safety, to protect lenders from disaster during a severe recession such as we experienced in 2008. The reserve fund would be depleted, since it is not designed for extreme events, but the remaining interest earned by patient lenders is more likely than not to be adequate to cover any further losses.
Has Lending Works provided enough information to assess the risks?
Lending Works is extremely transparent, providing a lot of data and answers to 4thWay's incessant questions. It enables us to analyse each individual loan's performance using many risk modelling and investing techniques. It also provides a lot of clear information and statistics on its website for individual lenders.
Is Lending Works profitable?
Latest published results show Lending Works is still not profitable as it continues to grow its business. However, it received another £3 million in backing in mid 2018 from respected investors.
What is Lending Works' minimum lending amount and how many loans can I lend in?
For just £10, lenders spread their money across thousands of loans.
Lending Works* has a lot of underwriting experience in its key team as well as credit-risk experience with personal loans.
Does Lending Works have an IFISA?
Lending Works' lending accounts are available as IFISAs.
Independent opinion: the opinions expressed are those of the author 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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