FAQ
PREFACE
The list does not represent the complete set of information on which investors should base their investment decision. Prior to making any investment in private debt investors should ensure they fully understand all the risks of making investments in private loans including, but not limited to the risk that part of all capital invested may be lost.
Investors should also consult with their financial, tax and legal advisors. Investing in private debt should represent only a portion of an investor’s overall portfolio and does not represent a complete investment program.
This list is for informational purposes only and does not constitute an offer of investment advisory services or a solicitation of investment.
What are private loans?
Private loans are loans that are made by private, non-bank lenders.
What is a loan originator?
A loan originator is a company that makes loans and then transfers the ownership of the loans to investors. Loan originators follow a process by which they evaluate the credit worthiness of the borrowers.
What is a loan administrator/servicer?
A loan administrator/servicer collects the borrowers’ monthly payments and maintains borrowers’ contact details. Upon collecting payments the loan adminstrator remits funds to investors.
What types of loans are in the US Consumer Finance Fund?
As the name suggests, the borrowers are US Consumers. The USCF buys only loans where the consumer indicates in the loan application that the purpose of the loan is to consolidate or refinance credit card debt.
Do borrowers provide collateral?
General purpose consumer loans provide no collateral. Timely repayment of principal and interest is directly related to the consumer’s financial ability and absolute willingness to repay the loan. Historically, the overwhelming majority of consumers have honored their committments. Click here to see data on consumer loan default rates.
Unsecured loans typically pay relatively high rates of interest in order to attract investors. In a portfolio of general purpose consumer loans the interest earned on the perfoming loans can more than offset the principal losses on the non-perfomring loans.
What makes Consumer loans a safe investment?
Statistics from the largest and most reputable consumer loan originators show the vast majority of borrowers have repaid their loans in full and on time. This is why MarkitLend has been able to generate an average annual yield of 7.5% on its loan portfolio since 2017.
Are Consumer loans guaranteed?
Consumer loans are usually not guaranteed. MarkitLend recognises this riskiness and creates a loan loss reserve provision designed to reflect in its accounts the real possibility that not all loans will perform. Since inception in 2017, MarkitLend has managed its loan loss provision well given the overall default levels. As a result, there have been no months where the USCF has provided a sub-zero return to investors. However, there is no assurance that even this additional safeguard will be enough to prevent investors from losing part or all of their capital invested.
How do Consumer loan originators ensure investors earn money?
Consumer loan originators lenders have many procedures. First, they do background checks on the borrowers. Second, they set lending criteria. They often require that borrowers have a demonstrated history of repaying their loans. They also can require the borrowers have monthly income to make the required payments. Many lenders require verification of borrower data and proof of income. Lenders also obtain data from credit rating and scoring agencies such as Experian , Equifax, TransUnion, and Innovis. Additionally, they obtain a rating from Fair Isaac Corporation, an independent data analaytics provider. Many originators also give each borrower a proprietary credit score that indicates how credit worthy they believe borrower is. Some lenders require borrowers to maintain payment protection insurance that makes the monthly payments in case the borrower becomes unemployed, gets sick or loses his job. Click here to read more about FICO scores.
What rates of interest do borrowers pay?
Borrowers usually pay rates of interest ranging from 8% to 30%. The interest rate depends upon several factors. Borrowers with high credit scores usually borrow at lower rates of interest than borrowers who have low credit scores.
What rates of interest do investors earn?
Net of defaults, Investors usually earn between 5% and 10%.
What determines how much investors earn?
Yields on consumer loans are related firstly to credit quality. Credit quality is influenced by a range of factors, including the borrower’s, loan history, reported earnings, employment status, credit history, outstanding debt and creit score. MarkitLend’s proprietary software takesn into account more than 60 pieces of data from borrower credit applications and other information provided by the originators.
The second factor determining yield is the term to maturity. Shorter term loans have lower interest rates that longer term loans, reflecting the increased riskiness that comes with time.
How is the USCF invested?
MarkitLend US Consumer Finance Fund features the following key parameters:
- Originator credit ratings ranging from A (highest quality) to E (lowest quality)
- Maturities at loan origination ranging from 1 to 5 years
- More than 1,300 loans
- Average, loan size less 0.5% of the portfolio
- Gross yield 18.4%
- Current and peforming loans are 94% of the portoflio