Lending Works Innovative Finance ISA Review
Lending Works 5 Year IFISA
Lending Works operates their own provision fund named “The Shield”. The Shield is backed by three of the UK’s largest insurers who cover loans against loss of employment, accident and sickness and death.
As a second layer of protection, Lending Works provides a cash reserve fund held within a segregated trust bank account with NatWest Bank. The primary purpose of this reserve fund is to ensure loans are repaid in full and on time.
Target Rate6.5% p.a.
Lending Works’ innovative finance ISA offers investors the choice to lend individual personal loans to consumers over the period of three or five years, receiving projected interests rates of 4.5 per cent and 6 per cent respectively, with the added advantage of the ISA’s tax-free wrapper. You can compare these rates against other IFISA providers here.
One can invest up to £20,000 (as prescribed by the government) in the current financial year. However, it’s also possible to transfer more than this amount from an existing ISA.
How to invest in Lending Works’ IFISA
The Lending Works ISA takes minutes to set up:
- Page 1 – On the website registration page, you must first set up your account by giving your email address and creating a password. Then, provide some personal details including your name, address, phone number, date-of-birth and bank account details
- Page 2 – Open your Lending Works ISA after reading and agreeing to the company’s terms and conditions
- Page 3 – Transfer money across from as little as £10
- Page 4 – Choose between three or five years of lending. Alternatively, you can choose to divide your investment across both rates
- Page 5 – Once this is all done, you’ll be able to access a page to manage your repayments. You can set your account up to automatically re-invest so that your interest can earn interest, or take the interest as an income by automatically transferring it to your bank account on a weekly or monthly basis
You’ll then be placed in a queue to be matched with potential borrowers and you’ll be able to see how long Lending Works predicts matches will take.
Lending Works’ ‘front-end’ diversification stage is part of its risk management strategy whereby your money is lent to a number of different borrowers, rather than just one.
The purpose of this is to help mitigate default risk by lending small amounts to lots of different borrowers. It has done this by developing an algorithm – the ‘fair algorithm’ as they call it – allocating your money across these multiple borrowers, based on when the lending offer was placed.
Once you start earning interest, and if you’ve chosen to ‘auto-lend’, the repayments will be lent to further borrowers, more so enlarging your portfolio.
There is a ‘quick withdraw’ service allowing lenders to withdraw or transfer their ISAs at any time, provided another lender is available to replace them.
Lending Works does not guarantee there will definitely be interested parties; it all comes down to the business’ popularity. Quick withdraw is also subject to a fee.
Any tax benefits are lost upon withdrawal, and you should use the designated transfer process to transfer funds to another ISA. If you try to do it yourself, again, tax benefits may be lost.
In the absence of regulatory protections, and due to the fact that the loans aren’t secured, Lending Works offers threefold protection to protect lenders from the risk of missed payments, borrower defaults, cybercrime, and company error:
- Underwriting – the company ascertains borrower eligibility through credit score checks, identity checks, fraud checks, and affordability checks (income, outgoings, bank accounts and debt)
- Ring-fenced trust – all client money is held in NatWest Bank, a segregated client bank account where funds are ring-fenced from Lending Works’ own funds and are unable to be used for any other purpose
- Lending Works Shield – consists of the reserve fund which is held in the ring-fenced trust protecting against fraud, default and missed payments. There’s also the insurance designed to mitigate the impact of extraordinary risks such as a major negative economic event
Lending Works has over 1,000 reviews from customers on Trustpilot, with a TrustScore of 9.7/10 for their customer service.
There’s little doubt that Lending Works goes a long way to reducing the associated risk of peer to peer lending.
Its dedication to customer service may come as a refreshing change to many of the mainstream services and the platform has established itself as a big hitter within the peer to peer industry – so far holding a celebrated track record.
However, historic performance is not an indicator of future success and there are other risks to consider when engaging in peer to peer lending.
Updated: Tuesday, December 4th, 2018