We take a careful approach to lending and only lend to borrowers who have been vetted and can demonstrate that they are able to pay back the loan. This allows us to reduce expected losses for investors. However, borrowers’ creditworthiness may change over time and cannot be guaranteed.
Our vetting process is rigorous and constantly reviewed.
To help ensure this, we only utilise the most effective underwriting techniques which include:
Credit checks - we perform credit-bureau assessments on all borrower applications.
Affordability checks – we assess a borrower’s income, expenses and levels of debt.
Identity checks - we use sophisticated software to verify a borrower’s identity.
As an investor, your funds are automatically spread across at least 5 borrowers, reducing your exposure to risk. The fact that your investment is diversified across a range of loans means the impact of any individual borrower not paying is greatly reduced.
We offer the borrower a loan with repayments at the same level or lower than what they currently pay. This helps make sure they can afford to make monthly repayments.
We reduce the rate on repayments for borrowers who reduce their debt. This can then reduce the risk profile of borrowers as well as make the payments more affordable to them.
We have a thorough arrears management process for borrowers who miss payments. To help get things back on track, we undertake a debt review and affordability analysis to assess the borrower's situation. Together with the borrower we agree on a repayment plan to increase the likelihood of full repayment.
At Leap, borrowers are able to pay back their loan early with no additional repayment fees. If this was to occur with one of your investment's underlying loans, you would receive that money earlier than expected.
You can sell your investments on to other investors provided the loan has been active for at least 12 months and the borrower is up to date with all the repayments.
There is a risk no investors are available at that time to buy your investment, therefore delaying your ability to get your money back early.
As Leap is launching anew, the default rate will not be available till a year from the start of operations. After 12 months, we will be able to publish actual default and arrears statistics.
Currently, we will provide expected losses based on the assumptions we have made while building our credit model.
|12 months||24 months||36 months|
|Expected cumulative default rate at origination||0.56%||2.16%||3.82%|
The estimated default rate is an estimate of the percentage of borrowers on our Platform who are unable to repay their loan and interest. The default rates that we predict are based on empirical knowledge of the UK consumer credit sector and the performance of the loans we originated.
We will measure our returns performance partly, but critically, by comparing expected returns to actual returns. This will contribute to our track record of delivering competitive returns, and also will hold us to account on how returns actually perform, compared to what we expect.
We don’t deduct tax from your interest, so you’ll need to declare your earnings to HMRC in your tax return.
At the end of each tax year we’ll give you an income statement with details of the interest you’ve earned. You’ll be able to download this from your dashboard and use it to fill out your tax return. We will also report any earnings to HMRC.
You can get more guidance here: http://www.gov.uk/guidance/peer-to-peer-lending