Bad debt - have I been lucky?

I think that on balance and past performance you have been lucky so far but for how much longer? In the past I have been one of the loudest moaners on this site about the apparent high rate of defaults and bad debts that FC were running last year. Earlier this year FC took it upon themselves to manage bad payers and debts and from my perspective things have improved. Realistically defaults and bad debts are a fact of life in the P2P business and high rates of interest/return bring with them a certainty of some degree of failure. Thus ultimately it is all about how much risk you are prepared to take with your investment strategy and who you are trusting with your money.

True but historically there have been some major 1st, 2nd payment defaults, Breath of Foul Air, S#%t House and the 300k loan which fell straight over, to name a few. When these occur, you lose all your capital invested, not just a depreciated part left a year or so later.

OK there was a 50% recovery of the 300k loan. Only lost half the investment there. What ever happened to the rest of that story? Must check..

It is exactly two years since I put my first £10k into Autobid at 5% diversity and received a clutch of £400 loan parts from the secondary market. The start of a learning process.
I think the most convenient way of judging the effect of losses is to express losses as a percentage of Gross interest, just using the two figures in the summary. It strips out the trading and promotions - and our individual tax positions. My losses as a percentage of gross interest received (£13k) are 5.3%. I have had four defaults but the effect has been mitigated by 45% recoveries. I am happy with this, except that the defaults I have dodged must have fallen on other lenders. Some of this is down to luck, but some down to management.

As others have said before, some losses can be avoided by selling those loans which go late, after the first payment, and which come back to life. I also agree with Grumpy that due diligence has its limitations. Because there is no business plan, no cash flow forecast, no ongoing supervision, we are soon flying blind. And I agree that the first six months is generally safer and try to refresh my portfolio and maintain liquidity, churning the riskier banded loans sooner than the less risky. This year I have disposed of all C- (aka D), and am heavily into the better property loans for the cashback and the fact that they are completely safe up to the end of the term. I admit to being a diversity criminal, and to spending some time on my account - not having to work for a living helps.

Currently using the summary, gross yield is 10.1%, annualised return is 9.6% (all those cashbacks) and fully diversified 7.3%, on a substantial account over two years. So if you work at it and are lucky it can be good. But if your time is valuable I would think there may be better places.

I must be even dumber yet, since my losses are about 15% of my interest. Not two years yet though, and my lessons are learned _ gross yield is now 12.6%, fully diversified estimate now up to 9.3%. Good idea for as metric though!! Mine were hit by autobid duds and crappy scrappy and the big engineering loan 50% loss. Some recoveries still trickling in.

My actual annualized net return is rather, better owing to cash backs and flips.

I do not claim to have any special knowledge or abilities and just benefit from spending too much time churning loans and learning the ways of FC. Primarily my losses are low due to luck in having 45% recoveries - no way you can predict or control that - and without those recoveries my losses as a percentage of gross interest would be around 10%. As a diversity criminal I could be zapped hard tomorrow by failure of one of those long-term riskbandremoved loans. 10-12% is ok for an FC account. Losing 10% of gross interest is like losing approx 1% of capital, if your gross yield is 10%.

Looks pretty normal to me ... Lots of folks buying them for the 2% cash back, and then trying to pass them on. There are a couple of new ones which turned into loans recently, so the 'stock' of what is for sale probably went up a bit, but only a bit. Prices, as ever, range from 1.5% discount to as small markup.