Default Rates

Minimising the risks

Any investment involves risks. Before lending on a peer to peer lending platform you should recognise the risks involved and understand how they are uniquely different with this type of investment.

Understanding the unique risk profile of peer to peer lending

Investors may be familiar with the typical warning associated with most regulated investments; that your investment can go up or down in value depending upon the financial markets and you may not get all of your money back. Peer to peer lending is different. If there is security on the loan you are entitled to receive a portion of your capital back, depending on the quality of the security. You will never receive more back than the interest that has been agreed but you may receive less. The value of your investment will not go up or down depending upon market conditions. The only reason that you may not get all of your money plus interest back is if the borrower fails to repay as agreed. Warning: Capital is at risk.

Our job is to try and minimise the possibility of the borrower not repaying. We do that by carefully selecting the deals to put onto the ThinCats platform, monitoring borrowers and by taking security that we will call in if the loan is not repaid. ThinCats specialises in loans with security. So, should the business fail, there are real assets on which our lenders can make a claim, in order to get their money back. There is one key exception to this and that are loans sponsored by Community Chest that offer tax relief in return for being unsecured. In each case Community Chest loans are clearly marked as being unsecured.

ThinCats track record

ThinCats has now been trading for more than five years and our experience of losses is summarised below.

All members of the Peer-to-Peer Finance Association are required to provide statistics showing annualised figures on non-performing loans and bad debts in a standardised way to facilitate comparison between platforms.

This data was prepared on 31st March 2017:

Note Year

2017 2016 2015 2014 2013 2012 2011 2010
Arrears 1
0.00% 0.00% 1.17% 9.43% 0.34% 0.55% 0.00% 0.00%
Loans in default 2
0.00% 2.35% 4.88% 11.93% 12.48% 14.91% 8.43% 0.00%
Expected loss of actual defaulted loans 3
0.00% 0.55% 2.94% 7.39% 5.09% 7.54% 8.07% 0.00%
Expected lifetime bad debt rate 4
2.00% 2.00% 3.50% 7.50% 5.25% 7.65% 8.07% 0.00%

Notes:

  1. Arrears means: Loans in arrears (but not in default) by 45 days or more as a percentage of the loans made in that year.
    Note: ThinCats is unusual among peer to peer lenders because of the close relationship that it establishes with a borrower in conjunction with the loan Sponsor. When a payment is missed the Sponsor will investigate what has caused the problem. Sometimes it is appropriate for lending syndicates to agree a change in a repayment schedule proposed by the Sponsor, and the P2PFA rules require these agreed changes to be shown as defaults even when the loan repayments are fully up to date as far as lenders are concerned.
  2. Loans in default means: Loans where a default has occurred as a percentage of the loans made in that year.
    Note: These figures represent the amount outstanding on the loan at the date of default but do not take into account any recoveries (please see note 3 below).
  3. Expected loss of actual defaulted loans means: The expected losses after the forecasted recovery of security as a percentage of the loans made in that year.
    Note: Security is in various forms and recovery can takes several months. This figure represents our best estimates of the eventual loss, however forecast is not an indicator of future results.
  4. Expected lifetime bad debt rate means: The expected lifetime bad debt at origination date as a percentage of amount lent in the calendar year. Forecast is not an indicator of future results.

These figures represent weighted averages over the whole ThinCats portfolio but because lenders create their own unique portfolio by selecting those loans that suit their own investment criteria every lender will experience a unique income profile and experience a unique loss rate. These average figures provide a guide to expected performance but cannot take into account your individual decisions relating to risk and return.