The risk of borrower default is one of the most significant risks for Investors in peer‐to‐peer consumer finance loans. Borrower default can occur for a variety of reasons including the borrower falling on hard times, death or serious illness and on occasion unscrupulous behaviour. Broader environmental factors such as recessions etc. can also influence the prevalence of borrower default.
We report a loan as being in default when:
Once a loan gets to this stage, it is written off with the outstanding interest and principal repaid to the investor(s) in that loan via the Reserve Fund (so long as there are sufficient funds available in the Reserve Fund). Our debt collection processes will continue, usually via an external debt collection agency and may involve legal action, to seek a recovery on the written off amount from the borrower. Any recoveries made are paid into the Reserve Fund.
The values and rates shown in the tables and charts below are the life‐to‐date values as of 19 November 2019.
Approved borrowers on our Platform are allocated a risk grade based on their strength across our credit criteria. Their risk grade helps determine the level of reserve levy that applies to their loan and therefore contributes to the overall borrower interest rate.
The table below shows the performance of loans within each risk grade to date:
|Number of loans originated||346||935||765||196||30||2,272|
|Value of loans originated||7,672,821||17,149,040||11,582,013||2,394,135||353,876||39,151,885|
|Number of active loans1||167||472||401||92||14||1,146|
|Active loan balance||2,542,740||6,805,142||4,571,259||870,516||139,903||14,929,560|
|Number of loans in default||1||12||29||12||3||57|
|Value of loans in default||(34,413)||(140,666)||(282,567)||(72,088)||(18,016)||(547,751)|
|Recoveries on defaulted loans||34,413||2,321||4,230||6,794||6,673||54,431|
|Gross default rate||0.4%||0.8%||2.4%||3.0%||5.1%||1.4%|
|Net default rate2||0.0%||0.8%||2.4%||2.7%||3.2%||1.3%|
|Number of loans in arrears3||3||9||16||5||1||34|
|Value of loans in arrears||74,815||126,716||223,777||54,448||1,674||481,430|
Loans made via our Platform may be secured or unsecured (depending on product and loan value). Secured Loans are secured over an asset which provides some opportunity for recovery in the case of borrower default. Any security provided by the borrower will be held by the Squirrel P2P Trustee in accordance with the terms of the borrower agreement and the loan agreement. Where the loan is covered by a Reserve Fund, the security is taken for the benefit of the Squirrel P2P lending platform and the Reserve Fund and not for any investor individually.
The table below shows the performance of our secured and unsecured loans to date:
|Number of loans originated||928||1,344||2,272||41%|
|Value of loans originated||21,936,694||17,215,191||39.151,885||56%|
|Number of active loans1||475||671||1,146||41%|
|Current balance of active loans||8,660,353||6,269,207||14,929,560||58%|
|Number of loans in default||9||48||57||16%|
|Value of loans in default||(107,973)||(439,778)||(547,751)||20%|
|Recoveries on defaulted loans||43,895||10,536||54,431||81%|
|Gross default rate||0.5%||2.6%||1.4%||n/a|
|Net default rate (after recoveries)2||0.3%||2.4%||1.2%||n/a|
|Number of loans in arrears3||11||23||34||32%|
|Value of loans in arrears3||260,694||220,737||481,430||54%|
The table below contains the loan volumes and default and arrears statistics for each of our loan cohorts:
|Loan cohort4||Loans originated||Active balance3||Loans in default||Defaults recovered||Gross default rate||Net default rate2||Loans in arrears3||Arrears rate|
1An active loan is one that has not been fully repaid or written off.
2Net default rate includes the written off loan amount less any recoveries made on those loans.
3Loans in arrears are defined as loans that are the equivalent of at least 1 monthly repayment behind schedule.
4A loan cohort is the group of loans that were originated within a specific six-month period..
The Reserve Fund has been put in place help protect your investment in the event of a late borrower repayment or borrower default. It is funded by applying a reserve levy to the borrower interest rate which is aligned to their risk grade and corresponding probability of default.
Whilst the Reserve Fund has ensured that all investor principal and interest due has been repaid in full to date, the Reserve Fund is not an insurance product and we cannot guarantee or warrant that it will have sufficient funds available to enable you to be compensated in event of late borrower repayment or borrower default.
For further detail about how the Reserve Fund operates, including what would happen if the Reserve Fund was depleted, click here.