My Peer-To-Peer Lending Loan Is Late - What Do I Do?
In this educational blog we’re going to cover late payments in peer-to-peer lending and when they become something to worry about. It is no secret that money makes the world go round and still there are people living paycheck to paycheck. People are required to pay seemingly endless bills like taxes, interest payments, mortgages, credit card bills and so on. Managing finances is no easy task, and the average joe does not always pay their bills on time.
Peer-to-peer lending, in essence, is an economic paradigm where borrowers can receive credit from virtually anybody (as opposed to only being able to receive credit from the bank). Peer-to-peer lending exists for borrowers so that they have an additional line of credit to keep their ventures going. Through the use of microfinance and modern technology, companies have designed software for collecting small sums of money from hundreds and thousands of people, adding up to provide ample amounts of credit to any borrower.
P2p Lending Platforms Are Facilitators
Peer-to-peer lending platforms are essential for the process of legally signing and binding a loan between a borrower and investor. The peer-to-peer lending platform also serves as a neutral mediator that keeps the capital and asset safe for the borrowers and lenders. Investors need to be insured that the borrower cannot simply default on his loan. Borrowers need to be assured that they are in safe, reliable hands. The platform itself ensures a good relationship between the two parties, borrowers only default on their loans for one reason: liquidity issues. Peer-to-peer lending as a whole understands that, every lending platform has adopted some form of grace period. Where borrowers receive a fixed number of days to make good on their payment before being considered defaulted.
When the grace period shows little promise, then peer-to-peer lending platforms use their back up plans, if they have them. As a general rule of thumb, peer-to-peer lending platforms that deal with consumer loans have a buyback guarantee. Peer-to-peer lending platforms that deal in mortgage loans have 1st or 2nd rank mortgages which they then auction off in order to protect investor funds. Business lending platforms vary based on the loan structure with the business entity. There are different investment structures that we suggest becoming familiar with prior to investing in peer-to-peer lending. It is important that you understand the process that occurs when your capital is at risk. When the buyback guarantee does not work and neither does the mortgage, then the peer-to-peer lending platforms pursue legal action to retrieve the funds.
Response Types From Different Lending Models
Let's take a quick look at a few platforms' approach to late loans, grace periods and defaults.
PeerBerry - Consumer Lending
PeerBerry is one of the fastest growing peer-to-peer lending platforms today. They are similar to Mintos in that they are both loan originator aggregators and specialize in consumer loans. PeerBerry gives their borrowers a 30 day grace period in case they are late to repay their loans. PeerBerry's default rate is also virtually zero due to what we consider sensible and competent management. PeerBerry's team is highly transparent and communicative. Their marketplace boasts very attractive loan offerings and the ecosystem is backed by PeerBerry's own dual buy back guarantee which is an elaborate security protocol that ensures the funds within the system are safe.
It work as follows: If the loan contract on PeerBerry goes late after 30 days, the loan originator buys the loan back. If the issue at hand is that the loan originator itself is unable to service the loan then all the loan originators in the system step in to assist the falling loan originator and their loan contracts. PeerBerry has an exceptional record when it comes to ensuring that their investors are profitable and not losing money. If you find your loans late on PeerBerry you are probably still safe.
ReInvest24 - Mortgage Lending
Reinvest24 is not your standard mortgage lending platform, but they do use 1st and 2nd rank mortgages to secure their loan offerings. Reinvest24 is a new kind of platform because instead of selling loans they sell temporary equity that is backed by their high-ranking mortgages. Investors are paid back through their equity.
To clarify, Reinvest24 offers real estate equity for credit, the real estate is accompanied by a business plan prepared by a third party, its objective is in the form of rental or a sale. The rental and/or sale occurs and Reinvest24 reaps a profit or yield for themselves and their investors. Reinvest24 has never experienced a faulty project, which means when they do it could get messy. If you find your loans late on Reinvest24, it could be reasonably alarming.
EstateGuru - Mortgage Lending
EstateGuru is the largest peer-to-peer property developer in Europe. They have the largest selection of projects across Europe, as well as the largest investor base. EstateGuru has also managed a very small default rate and is known for its impressively successful debt restructuring efforts. In our monthly updates, we reported that EstateGuru was having problems with late payments that we documented in our monthly updates seven and eight.
EstateGuru does not offer any buyback guarantees. Instead, the platform fulfills its end of the deal as a facilitator by either finding a debt restructuring solution or selling the mortgages and returning the principal to its investors. EstateGuru gives their borrowers two months to make good on their defaulted loans. If they fail to do so the projects go to auction. If you find your loans late on EstateGuru you are probably still safe.
TLDR:
- Investment structures greatly assist in understanding the process of a defaulted loan
- Different peer-to-peer lending models approach fund recoveries differently
- Some platforms are high risk due to their design rather than their faults
- Peer-to-peer lending platforms are necessary neutral mediators
Verdict
If you're in the situation where your loan is late and you are panicking, you may not necessarily have to. The first step is figure out what security structure the site you're using supports. Do you have a buyback guarantee or does the loan have a mortgage? Sometimes platforms are hesitant to call a late or defaulted loan and delay the change in it's status, so contact support if you see that your payments are not coming as per schedule. Find the track record of the company you're using to determine what your future prospects may look like. A late payment is not a defaulted loan. Sometimes people need room to breath and for that, they need to remain liquid. As long as you select a reliable platform, you can rest easy too.