Here's what happens when a company (borrower) defaults on Fundaztic peer to peer lending platform. I've got this loan (note 78) which went into default state. I put in RM100 as it was a D7 level note (not so high quality). I had some faith in it initially because the company was dealing with funeral services which I felt was a recession proof business.
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| Fundaztic Peer to Peer Lending |
The loan is placed in a default state if Fundaztic is not able to collect the installments after 60 days. After that the loan is place as write off state.
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| Fundaztic Note 78 |
In the end, the company defaulted on its payment after the 1st few installments. Fundaztic then filed a bankruptcy notice to the company using legal means. Surprisingly, the company suddenly decided to pay back the loan with a lower amount backdated to a few months back.
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| Default and written off note 78 RM 100 lending |
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| Status of the written off note |
The recovered amounts were then used to pay the legal fees, late payment fees, platform fees and then whatever was leftover were distributed back to investors.
I receive some of the recovered monies today from Fundaztic. Moral of story is a company in default doesn't mean it's a lost bet, there's still some chance of recovering the loan. What I also like about the Fundaztic platform is it puts in updates on the measures and steps done to recover the loan. For companies/borrowers thinking that peer to peer lending platforms are their ATM machine, they better think twice because not only legal action is taken, the borrower's details and company are submitted to ratings agencies (CTOS, CGC) on defaults.
Peer to peer lending is not for everyone, it is generally high risk but also offers high levels of returns. It should be used as an instrument to compliment existing investments like ASB, fixed deposit, mutual funds, REITs.
The only way to avoid such risks is to use small amounts, Fundaztic's minimum amount is only RM 50. If this is spread out across 100 notes, you diversity and spread the risk out. I have also tested out, even good notes with A2 ratings can default, so keep your lending amount low, don't put big amounts. I suggest don't invest more than RM 500 in a single note, there will always be notes coming in, the key seems to be notes diversification. While there are defaults here and there, my average return on investment is still a healthy 21%.
Here's a link from Fundaztic on how recovery of bad debts works.
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| My returns so far |
If you want to join Fundaztic to do peer to peer lending, use my referral code :
https://p2p.fundaztic.com:443/generalize/regist?member=xYu1By6%2Fb54P%2FkEh1vonuw%3D%3D