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The Lending Well makes first loans
It was reported today from a reliable source that The Lending Well has made its first peer-to-peer payday loans. Borrowers pay a fixed 1% per day and lenders receive 12% per annum (pro rated for the time the money is actually on loan).
We recently contacted The Lending Well and they explained how their queueing system worked. Here is their explanation.
1. Lender funds are placed in a segregated client account.
2. When a borrower is approved, their loan is split into £10 packets.
3. £10 is taken from the first lender who then goes to the back of the queue.
4. £10 is then taken from the next lender and so forth until the loan is filled - a bit like a stock exchange automated matching system, if that's an analogy that helps. Lenders are not placing their funds with a single borrower as happens with some p2p systems.
5. In order to minimise the time when lender funds are idle, The Lending Well balances the volume of lenders according to the amount of borrowing. As is prudent for a start-up, the intention is scale up volumes of lenders and borrowers over time.
We also queried the disparity between the lending and borrowing rates. Here is their response to this point in full.
The first thing to recognise is that the cost of making a loan is quite fixed whether it is a £5,000 three or five year unsecured loan by a major bank or a £500 pay day loan but without the years of payback to spread the cost across.
The Lending Well has customer acquisition costs through marketing and advertising. Then all the usual strict credit checks must be undertaken. If those are passed, The Lending Well also carries out employment checks. Finally the legal process of making the loan has a cost even with the advantages of using the internet as the arrangement medium.
The rejection rate is also a feature which raises costs. The Lending Well wishes only to lend money to high quality borrowers and will be rejecting all but the best customers.
We believe 12 per cent is an excellent return for lenders and we also hope that over time the rate charged to borrowers will come down.
The Lending Well is certainly having an impact, and we'll be watching this with some interest, excuse the pun.