LENDINGCROWD has changed the way it calculates expected returns, which it says better reflects the risk of defaults.
The Edinburgh-based peer-to-peer lender said it is now using data analytics firm Brismo to independently verify the data and modelling it uses to calculate probabilities of defaults on its business loans.
This has resulted in lower target rates for its Growth Account and Income Account, of 4.9 per cent and 4.6 per cent respectively.
It said it will review the target rate every three months.
“We have been working with Brismo on a new methodology for loan valuations through the repayment cycle,” LendingCrowd said in a blog post on its website.
“Loan valuations can change for a variety of reasons, for example if a repayment from a borrower is overdue or the borrower has made a recovery payment. We consider that it’s in our lenders’ best interests that this data be independently scrutinised on an ongoing basis in order to provide you with the best indicator of your likely returns.”
An expected return will be shown for each loan on the platform, LendingCrowd said. This figure is different from the interest rate the borrower pays, as the expected return takes into account the likelihood of the borrower not meeting their repayments and the risk of the investor losing money.
In line with the updated rules from the Financial Conduct Authority, LendingCrowd has made a host of other changes to its platform, including the introduction of investor classification and appropriateness tests, as well as adding more information to its loan details pages.
It has also started to use the term ‘default’ for bad loans, rather than a ‘capital loss’, and will declare a loan as a default when the payment is overdue by more than 90 days.
“This is a new regulatory requirement and replaces the previous practice of declaring a loan as a capital loss after 120 days,” LendingCrowd said.