P2P Money Blog

The P2P Money website is now publishing a league table of the performance of the bad debt of the peer-to-peer companies in the UK against their predicted bad debt estimates.  In addition to the league table is the monthly change of bad debt against estimates.

Bad debts will be a reality with any lending, so when setting interest rates, lenders need to factor in these potential losses.  The major peer-to-peer companies provide estimates of annual and / or lifetime bad debt rates as a guide to lenders.  If actual bad debt rates are lower than estimates then lenders' returns will be better than expected.  Conversely if bad debt rates are higher than estimates then lenders' returns will be worse than expected.

I would argue that the estimates bad debt rate isn't relevant, provided the lender has taken this into account with all of the tax implications.  What is important is how the actual bad debt compares with this estimate.  If bad debt is higher then this could indicate that the underwriting needs to be improved.

Currently Funding Circle has the #1 position with a lifetime bad debt of 0.89% against a weighted estimate of 3.02%, giving an positive 2.12% difference (rounded to two decimal places).  Congratulations to the top 4 companies who are all showing a positive difference against their bad debt estimates.