How Loanpad Is Changing the Way Investors Grow Their Money
Whether you’re an experienced investor looking to diversify your investment portfolio, or an everyday saver looking for other ways to grow your money, there’s a new peer-to-peer lending platform on the market that provides you with a unique way to invest.
Loanpad offers a ground-breaking hybrid lending model that combines the most attractive features of pure P2P lending with the best of balance sheet lending. As an investor-centric business, Loanpad focuses on making lower-risk, secured lending accessible to smaller investors.
The platform is not only geared towards safety and security, but also simplicity and efficiency. Loanpad is as easy to use as a bank account, yet investors earn higher interest rates compared with traditional savings accounts albeit with a higher degree of risk, thanks to the platform’s innovative lending model.
Here are seven reasons to invest with Loanpad – and change the way you think about investing:
1. A P2P platform with ‘skin in the game’
Loanpad does not originate loans directly. Rather, it partners with established property lenders (lending partners) that originate the loans and share a portion of these loans with the investors on the Loanpad platform.
Like pure P2P models, Loanpad is a matchmaker and does not lend any of its own money. However, the lending partners fund at least 25% of any loan. This means, there’s always ‘skin in the game’, protecting you as an investor on the platform.
2. Greater security than a typical loan
Loanpad converts each loan into two entirely different risk classes: a lower risk senior part and a higher risk/return junior part. This unique lending model aims to offer greater security than a typical P2P loan. As a Loanpad investor, you are only funding the lower risk senior part, while the lending partners fund the junior part and retain the first loss position. This means they stand to lose capital before you do.
3. Both the chance and impact of loss are minimised
While any investment carries a certain degree of risk, Loanpad’s lower risk senior tranche structure has been designed to minimise the chances of any loss. Should such a loss occur, the platform also aims to minimise the impact of this loss, by diversifying your investment across the entire performing loanbook daily.
4. Loan transparency
The platform provides investors with the ability to check every loan, as well as data relevant to the overall loanbook. This means you’re making an informed choice to be invested with Loanpad every day.
5. Direct borrower/lender relationship
To maintain a simple, efficient and risk-controlled structure, Loanpad ensures that you have a direct lending relationship with the borrowers, rather than a contract entitling you to the proceeds of the loan. You never lend to Loanpad or its lending partners.
6. Layers of due diligence
All loans are first evaluated by Loanpad’s lending partners, who conduct a full pack of due diligence as thoroughly as you’d expect from a specialist lending business with ‘skin in the game’.
With the aim of only listing the most appropriate loans for investment, Loanpad then conducts its own thorough due diligence, including extensive checks against all end-borrowers to review items such as:
- previous history;
- experience and activity;
- assets and liabilities (including net assets);
- the fit between the borrower and loan in terms of suitability; and
- whether they have sufficient means to repay the loan within the time permitted.
All security is then independently checked by surveyors and solicitors.
7. An investor-focused business model
Loanpad’s business model is focused on providing investors with access to a premier lending experience. Loanpad earns revenue from a margin between the rates paid by borrowers and the rates paid to investors. This margin acts as Loanpad’s fee, which means that the platform’s income – and best interests – are aligned with yours, as an investor.
Are you ready to change the way you invest? Chat to us for more information [here] or [sign up] now.
Choosing a P2P Lending Platform: Why Loanpad’s Hybrid Model Stands Out
If you’re looking for an efficient and user-friendly way to invest, you may be exploring online peer-to-peer (P2P) lending – and wondering which platform can offer you the best value for your money based on your investment objectives and preferences. A strategic way to kick off the selection process is to compare the different P2P lending models, which continue to evolve as new players enter the ecosystem.
The approach that most people are familiar with is the pure P2P lending model, which first emerged as an innovative and accessible alternative to high-street banks. For investors, this model offers an opportunity to:
- lend directly to borrowers with relatively small investment amounts;
- and typically benefit from higher interest rates than they would through easy-access cash savings accounts at retail banks albeit with a higher degree of risk.
Being digitally-driven, pure P2P platforms are also lightweight and agile, which supports shorter turnaround-times and a simpler, more transparent customer experience for both lenders and borrowers.
How pure P2P lending works
This type of model offers a digital marketplace that matches borrowers and investors, without the business financially committing to the transaction. Pure platforms earn revenue from loan origination and servicing fees. Thus, growing the business relies heavily on the platform’s ability to continually attract higher volumes of investors and borrowers. This can be a challenge during slow economic times or as bank savings products become more competitively priced. If these platforms cut their lending costs to attract borrowers, their lenders lose out.
What’s the alternative?
Another approach is the balance sheet lending model, which existed long before pure P2P platforms entered the market. Balance sheet loan originators put their ‘skin in the game’ by lending their own money – and therefore shouldering the credit risk internally. If the loans are not repaid, the balance sheet lender loses money.
P2P platforms, on the other hand, do not lend their own money and simply match borrowers with investors. It is the investors that ultimately bear the risk of losses.
However, the balance sheet lending model is more capital intensive than the pure P2P model. This provides P2P platforms with the potential to be far more scalable.
Bringing you the best features of both pure P2P and balance sheet lending
Loanpad offers a new hybrid lending model that combines the benefits of the pure P2P lending model and the balance sheet lending model. With Loanpad, balance sheet lenders (with their incentive to stay safe and only originate good loans) share loans with investors, who benefit from that quality assurance.
Simultaneously, by harnessing advanced technologies, the Loanpad platform offers an uncomplicated, user-friendly investment experience – providing the speed, efficiency and simplicity associated with pure P2P lending platforms.
In essence: Loanpad offers lower risk P2P investment suitable for the mass retail market that’s as simple to operate as using a bank account. Yet it offers higher interest rates than traditional savings accounts due to the lending model albeit with a higher degree of risk.
An innovative way to manage risk
Loanpad is a pure matchmaker and does not lend any of its own money. Rather, it partners smaller investors with established property lenders (who are balance sheet lenders and therefore ending their own money).
Over and above this benefit, the established property lenders (lending partners) take at least 25% of each loan on a first-loss basis – putting ‘skin in the game’ and shielding the smaller investors from initial losses. This structure provides further safety and quality assurance.
Loanpad loans are converted into two disparate risk classes:
- A lower risk senior part for smaller investors
- A higher risk/return part for lending partners
The lending structure aims to minimise the chances of any loss, as well as the impact should a loss occur. It achieves this by both diversifying investors’ portfolios across the entire performing loan book, daily (reducing impact of any losses) and ensuring that the lending partners hold their tranche on a first loss basis (reducing chance of any losses).
Loanpad earns revenue from a margin between rates paid by borrowers and rates paid to investors. Thus, its income is aligned with that of its investors. This, combined with the fact that Loanpad investors have a direct loan relationship with the underlying borrowers, means that Loanpad aims to offer a hybrid P2P lending structure that is stable, simple and efficient.
Check out our ‘invest’ pages to learn more about model and apply today for our either our Classic or Premium lending account.
3 Ways Loanpad Aims to Protect Your Investment
Like any investment vehicle, peer-to-peer (P2P) lending carries a certain degree of risk. As an investor keen to grow your nest egg or to expand your portfolio, you may be wondering how P2P platforms manage this risk in order to protect your capital.
Recently, the Collateral Companies[1] – which operated a UK-based P2P lending platform – came under the media’s spotlight for ceasing their lending activities and going into administration. It was reported[2] that the companies were trading without the necessary permission from the Financial Conduct Authority (FCA). The FCA have confirmed that “none of the Collateral Companies held any valid authorisation or permission to carry on regulated activities.”[3]
While the rest of the story is still to unfold, including details on whether Collaterals’ investors will get all their money back, this incident highlights two important issues:
- As an investor, it’s essential to do your own due diligence and make sure the lending platform you choose to invest with is authorised to operate in your financial market.
- It’s also advisable to gain a thorough understanding of the firm’s risk management model, so that you can judge whether it aligns well with your risk appetite, and your investment objectives and preferences.
How does Loanpad manage risk?
Loanpad is a new P2P lending platform that offers an innovative lending model and a user-friendly online investing experience that’s attractive due to its simplicity and efficiency.
As with making any investment, your capital is at risk if borrowers do not repay their loans and the security is insufficient to recover the loan. However, Loanpad operates an investor-centric business model that aims to grow and protect your money.
Loanpad is also authorised and regulated by the Financial Conduct Authority (FCA); and authorised by HM Revenue and Customs (HMRC) as a manager of Individual Savings Accounts (ISAs).
Here’s how Loanpad aims to protect your investment:
1. A vested interest
Loanpad is a matchmaker and does not originate loans directly. Instead, Loanpad partners with established property lenders (lending partners) that originate loans and share a portion of these loans with the investors on the Loanpad platform.
As an additional benefit, Loanpad’s lending partners fund at least 25% of every loan, which means they have ‘skin in the game’ and their interests are aligned with you, as an investor on the platform. Loanpad’s lending partners conduct a rigorous credit risk assessment before on-boarding any borrower, which is followed by another round of due diligence carried out by Loanpad itself, before accepting loans on the platform.
2. Two different risk classes
To minimise your risk of loss, Loanpad converts each loan into two different risk classes: a senior part offering lower risk and a junior part offering a higher risk/return. As an investor on the Loanpad platform, you’re only funding the lower risk, senior part of the loan, while Loanpad’s lending partners fund the junior piece – bearing substantially more of the credit risk. Therefore, should the loan default, these organisations stand to lose all their capital in that loan before you lose any.
3. Diversification
One of the most effective ways to minimise the impact of loss is to diversify your investment across a wide range of loans. To this end, Loanpad automatically spreads your investment across the entire performing loan portfolio on a daily basis. This means there is no difference between drip feeding funds or putting in a lump sum, as it all gets spread daily across all loans.
Should a loan default, what happens?
Loans are managed by Loanpad’s lending partners under Loanpad’s supervision. If a loan is in default, Loanpad holds full “step-in” rights to ensure an optimal recovery strategy is agreed and pursued – in order to protect platform investors. Depending on the loan circumstances, this strategy may include:
- An LPA Receiver being appointed to take control of the security and seek a sale, refinance or other method of enforcement
- A sale of the entire loan to a third party
- The lending partner “buying out” the senior part of the loan and handling recovery themselves
You’ll continue to earn interest daily
Should a loan go into default, the investors on the Loanpad platform will continue to receive daily interest from Loanpad’s Interest Cover Fund (subject to available funds) until the loan has been recovered in full or a capital loss has been crystallised. The Loanpad Interest Cover Fund exists to ensure that investors get paid their interest daily, in full.
For more information on how we aim to keep your money safe, or to sign up for a Classic or Premium lending account, visit our website now.
Active vs. Passive Investing: Which P2P Strategy Suits You?
How much time do you have to manage your investments? How sophisticated is your level of financial expertise? These are key questions to ask yourself as you define your ideal peer-to-peer (P2P) lending strategy. In the world of P2P lending, there are two key investment approaches: active and passive. Each method has its own pros and cons.
What is active investing in the P2P lending context?
On a P2P platform that offers an active investing model, investors manually select the loans they want to invest in. Depending on the lending platform, this may involve evaluating and choosing interest rates, assessing the probability of default, and more – in relation to each loan or borrower.
In order to minimise risk and optimise opportunity, active investing usually requires you to conduct a certain amount of due diligence in order to choose the most suitable loans. This may call for both financial expertise and an investment of time, especially when you take the breadth of a diversified portfolio into account. The more loans you bid on to spread your investment and risk, the more time you need to spend on the platform.
Also, depending on how often new loans are loaded onto the platform, investing may be time-sensitive. You may need to make sure that you log in at the right times each day or week, and make swift decisions, in order to compete with the other investors in the system.
While this active approach could ensure that you dedicate your capital to only the most suitable (and potentially rewarding) loans, it can be onerous. Ultimately, the viability of this method depends on your experience and the amount of time you have available. Additionally, it depends on the quality and quantity of the information provided by the platform.
What is passive investing on a P2P platform?
Some platforms automatically allocate your investment, spreading your capital over a selection of loans at regular intervals. If you’re investing through the Loanpad platform, your investment is automatically diversified across the entire performing loan portfolio on a daily basis.
This strategy is simpler and less time-consuming when compared with the active approach, calling for no specialised financial expertise beyond deciding to invest in P2P lending and, in relation to the Loanpad platform, choosing between the two easy-to-use lending accounts that are available. These Loanpad accounts offer the operational simplicity of typical online current accounts, but with higher returns due to the higher degree of risk. With both accounts, your funds are diversified on a daily basis and you earn interest every day. Free access to funds is available from the Classic account*, while the Premium account pays a higher rate of daily interest, but free access requires 60 days’ notice*. Both accounts are ISA eligible – so, if held within an ISA wrapper, investors can earn the same great rates tax free.
The passive P2P investing method tends to appeal to people who don’t have time to analyse each loan opportunity, but still want to generate the type of returns that the P2P lending model can offer them. These could be high net worth or veteran investors who have large investment portfolios to manage and therefore less time to focus on the details. Alternatively, these investors could be P2P newcomers who have minimal investment expertise and want to leave the analysis up to the lending platform.
On the Loanpad platform, you can earn an interest rate of over 4% passively with a Premium account. You may well be able to earn a higher interest rate elsehwere, but you could also face a higher risk of double-digit losses.. On Loanpad, you benefit from a stable income because you’re earning interest daily. You also have the advantage of compounding your returns quickly. And, importantly, you benefit from a unique lending model that is lower risk and fully focused on preserving your capital as it grows.
Commenting on this topic recently, Neil Faulkner, chief executive and founder of P2P analysis firm 4th Way, explained that some P2P platforms promote the passive approach, because they “worry that investors are not diversifying enough”.
“For investors, automatically lending increases the number of loans that you lend in. Lending across more loans dramatically lowers the risk of losses” Mr Faulkner added.
Which P2P investment strategy suits you?
Would you prefer to roll up your sleeves and manage every detail of your investment, or select a good system and let it do all the hard work for you?
If the latter sounds more attractive, find out more about Loanpad’s fully automated Classic or Premium lending accounts here.
* We do all we can to release your money as soon as you ask for it. But this does depend on funds being available, from time to time there may be a slight delay.