Lending Works is a peer to peer lending platform that connects investors with UK consumers seeking personal loans. Investors automatically diversify their capital across multiple borrowers when they lend through the platform, they cannot manually select loans.
Risk and Security
The principal risk is a large number of borrowers default. The Lending Works ‘Shield’ protects investors from missed repayments through a combination of diversification, insurance and a provision fund. The maximum exposure a lender will have to a single borrower is 5%, ensuring healthy diversification across loans. The provision fund is maintained at a sufficient level to cover expected arrears and defaults. The other tier of protection in the Shield comes in the form of insurance, which is backed by three A and B-rated UK insurers.
If a borrower is late in making a repayment, the Lending Works Shield will cover the payment, while the recovery process commences. Lending Works will make initial contact with the borrower and if the borrower still fails to pay, a third party debt collector will take steps to recover the debt.
To withdraw funds early, investors must sell their loan parts to other investors on the Lending Works secondary market. Lending Works charges 0.6% or £20 (whichever is greater) to sell any loan commitments on the secondary market. Additional charges may apply if there’s an ‘interest rate shortfall’ between current rate on sale and the rate expected by the substitute investor.
In the event of insolvency, Lending Works has an arrangement with a back-up services provider who would step in to manage the remaining loan agreements to maturity and ensure that all loan repayments continue to be made to investors as planned. Any funds sitting in cash are held in a segregated client account and can be transferred to the investor at any point.