As mentioned previously, I have some money invested in peer-to-peer (P2P) loans and things have gone swimmingly well after one and a half years.
However, at the end of last month, I received notification of my first loan default! Oh no!
The default was on one of my loans with Funding Circle (FC) and I received the following message explaining the situation:
The borrower has been struggling to make its repayments since September 2015, and has requested a payment plan which would see the loan repaid over a longer period of time. We have informed the borrower that the only way we can agree to his proposed payment plan is for the guarantor to consent to a voluntary fixed charge over his personal property. The borrower has not responded to us since bringing up the matter of a voluntary fixed charge, and we are therefore defaulting this loan in order to protect your position by crystallising the liability of the guarantor. Defaulting will also enable us to commence legal proceedings against the guarantor, should the guarantor remain unresponsive. On a RAG (Red, Amber, Green) rating system, we would give this loan a Red status, as the prospect of recovery is uncertain at this point, however we are hopeful that this rating will improve once we have a better understanding of what the guarantors can afford to repay. For your reference, the original risk band for this loan was a B rating.
Keep Calm, Don’t Panic
So, it’s possible that I could end up not getting any more money back on this loan, but also possible that there’s a chance of recovery – it looks like I will have to wait and see.
Does this mean that I should consider withdrawing my money out of P2P altogether?
My thinking is no.
The value of the loan that defaulted was only £11. I don’t have any loans greater than £60 with FC; the smallest loans are around a tenner. The £1k or so that I have invested with FC is made up of over 50 such little loans, with the idea that if a couple of them were to default, the impact would not be so great. I’m trying to spread my exposure as thinly as possible – my current maximum exposure to any one business is 5.8%.
Of course, I run the risk of more than a couple of them defaulting in the future (and there’s an increasing chance of this happening with the changing economic climate), but that’s a risk I’m willing to take in order to make the most of the high interest rates that P2P currently offers.
I had been considering investing more into P2P, to try to increase my monthly income (currently around £10 – £11) but in light ofmy recent change in investment strategy to increase my dividend income and now this default, I’m not so sure I’d want to pump too much more into it. I have a feeling that this won’t be the first or last loan default – just need to keep a cool head!
Something to ponder on when I look at what goals I want to achieve for 2016.
Anyone else had any experience with P2P loan defaults?
[Image courtesy of Consumer Fu]