This article is from the Good Guide to the Innovative Finance ISA, which is available to download for free here.
Higher education gives a boost to an individual’s earning potential and job prospects – but it can also pay off for investors.
Postgraduate students can find it difficult, or even impossible, to get affordable funding for their course from traditional high street banks and Government-backed loans often don’t stretch far enough to cover personal expenses on top of tuition fees.
Lendwise, which launched in 2018, aims to fill this gap by matching investors with borrowers who want to fund their studies to further their career and therefore their earnings potential. It is the UK’s only peer-to- peer lender to specialise in education finance.
Fair and flexible student loans
The platform provides fair and flexible loans to students who have the personal merit to take postgraduate courses at top business schools and universities in the UK or internationally – but maybe not all of the funding. Meanwhile, lenders can target a competitive return on their investment of around six to 12 per cent while also making a positive social impact.
Lendwise co-founder Kypros Mouzouros said: “We strongly believe that if you are smart enough to go to university, and you have shown the aptitude and the application in your studies, a lack of funding should not stop you from pursuing your aspirations further.
“That is why Lendwise exists – to help those who want to keep learning to be able to do so without burdening them with unfair loan terms. On the other side of this, we offer an attractive opportunity for investors who are looking to make a personal profit and a positive difference to society at the same time.”
How to invest with Lendwise:
- Before you start investing with Lendwise, you’ll be asked to take an ‘investor appropriateness test’ to determine what kind of investor you are and how much risk you can afford to take and are comfortable with.
- Then, you’ll need to open an IFISA account and fund it with a minimum initial investment of £1,000 (If you choose a Classic account, which comes without the tax benefits of the IFISA, the minimum is £200).
- You can either manually choose the loans you want to fund (it’s wise to spread your investments over multiple loans – see below), or use Lendwise’s ‘AutoLend’ feature to do this automatically according to your appetite for risk and investment objectives.
- You will receive capital and interest repayments monthly in line with when the borrowers you have funded are paying off their loan (this may start up to six months after they graduate).
- This money can either be reinvested, or withdrawn as cash.
What’s the risk?
To keep risk as low as possible, Lendwise has strict criteria for its borrowers. The platform analyses a student’s future earnings potential, according to their chosen career, as well as their financial history and creditworthiness before offering them a loan.
Kypros said: “We are very cautious about the students we lend to, and in doing so believe the risk can be lower than with other types of investments. Afterall, Lendwise is the only loan of this type that actually enhances a borrower’s ability to repay it over time.
“The main risk with Lendwise is that a student may default on their loan, but thanks to our thorough application process the number of defaults we have is very low – currently under two per cent.”
Lenders are advised to split their investments across multiple individual borrowers in varying study areas and graduating over a number of years. This helps to diversify their lending portfolio and reduce risk.
Kypros said: “For example, a £1,000 investment might be split across 100 loans at £10 each. This way, if one or two borrowers default, the impact on the overall portfolio return will not be significant.”
Lendwise aims to help both borrowers and investors to achieve their goals. “For students, access to affordable education finance means they can fulfil their academic and career aspirations, which in turn leads to higher income and benefits the economy,” said Kypros.
“At the same time, investors can directly access a socially responsible investment opportunity that aims for strong financial returns.”
* As with all forms of investment, your capital is at risk. Investments on the Lendwise platform are not covered by the Financial Services Compensation Scheme (FSCS). Investment returns on the Lendwise platform are not guaranteed and past performance is not a reliable indicator of future performance.