RateSetter has unveiled changes to its provision fund to alter the way it covers missed payments.
Currently, all missed loan repayments and interest are covered by the peer-to-peer lender’s provision fund and the whole debt is repaid to investors after the third month of arrears known as a “charge-off.”
From 29 October, rather than paying off the loan after the third month, the provision fund will cover each monthly payment as it is due.
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“Investors will receive scheduled payments of capital and interest when they are due until the end of the loan’s term whereas previously, they would receive the outstanding capital at the time a consumer loan missed its fourth payment,” RateSetter said in a note to investors.
“This also means that investors may be matched, or continue to be matched, to consumer borrowers who are in default whereas previously these loans would be charged off to the provision fund.”
Following this change, RateSetter said the provision fund will cover extra interest, which is expected to decrease its interest coverage ratio by three per cent and the capital coverage ratio by seven per cent.
“The new procedure will improve the management of the provision fund’s cash flow by better aligning its income with the payments it makes to investors,” RateSetter said.
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