Risks associated with investing in unsecured loans
All investors wishing to deploy their hard-earned capital through marketplace lending must be familiar with the potential risks and assess whether these risks are acceptable to their portfolio.
Risk of default. There may be cases that, for any reason, the borrower is unable to repay the loan, in full or in part, even after debt recovery procedures.
Changes in the country’s unemployment rate. If the unemployment rate suddenly increases or the employment market suddenly worsens, it is likely that those SAVY users in lower-income brackets become a higher risk for default.
Bankruptcy or termination of the Company’s business. If SAVY enters bankruptcy or terminates the contracts with its service providers, the contracts between SAVY borrowers and lenders remain valid; however, it should be known that the debt collection on any borrowers’ insolvency or inability to pay could no longer occur.
Changes in legal regulation. As marketplace lending activities in Lithuania are relatively new and unregulated, it is possible that changes in legislation and regulation of activities addressed could change the pattern and performance of the business in a material way.
Changes in the country’s economic situation. Real estate market is directly dependent on the economic situation, therefore, RE market may slow down due to the impaired performance of country’s economy. Therefore, liquidity of real estate may decrease.
In order to minimize these and other risks, SAVY carefully evaluates each new borrower’s application. SAVY uses information including but not limited to the State Treasury, the State Data Protection Agency, CreditInfo credit bureau, the borrower’s bank statement or other info, and other necessary information. The investors’ accounts and list of loan applications are verified only insofar as the information provided in their respective applications. SAVY is constantly engaged in dialogue with the public authorities on marketplace lending regulation.
SAVY requirements for borrowers:
Approved identity. Borrowers and those applying for loans on SAVY’s platform always have their identity confirmed by transfered 0,06 Eur. via E-banking.
Income. Bank statements and social security data help determine whether a borrower has regular and sufficient income to obtain a loan. In addition, loans secured wotj RE can have additional measures (guarantee or suretyship).
Personal solvency. To be approved for loans, borrowers must not have any registered debt claims at the time of applying on SAVY.
Real Estate Collateral. Real estate collateral has to comply with SAVY requirements.
Borrower SAVY rating:
Class A - high reliability (0.00% - 1.62%)
Class B - higher-than-average reliability (1.62% - 4.46%)
Class C - average reliability (4.46% - 11.67%)
Class D - low reliability (11.67% - 27.20%)
Class E - the lowest reliability (27.20% - 100.00%)
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Interest rates, in the table above, do not apply to the loans secured with Real Estate (mortgage loans and loans for RE project).
You should take into account the following, while investing in loans secured with RE:
Loan-to-value (LTV) ratio – the lower the LTV, the lower the risk (in case of insolvency we can sell the property in auction and return proceeds);
Liquidity – we can sell a liquid property more rapidly;
Debt-to-income (DTI) ratio – the lower the DTI, the easier it is for the borrower to repay a loan;
Project description and prior professional experience – allows forią evaluation of additional risks related to the borrower and the purpose of the loan;
Additional security (guarantee, suretyship) – an obligation by a third party to repay in the event of borrower default on a loan, thus decreasing investment risk.
You can see all the information above in loan description.
Be aware that the investment risk is taken by investor itself as investor is responsible for choosing the loan and amount to invest.
In order to manage the investment risk, SAVY limits the maximum investment amount to 500 EUR to one consumer loan. The amount is not limited for loans with pledged RE.