What happens when a loan defaults (for investors)

Most of our borrowers repay on time, but, like any lender, we sometimes need to step in when things go wrong. This article sets out:

how we define “default” (and why our 14-day rule is stricter than the FCA’s 180-day trigger)
the step-by-step recovery process we follow
what investors can expect in terms of communication and outcomes

1. When is a loan classed as “in default”?

FOLK2FOLK 14-day rule: if a scheduled interest payment is 14 calendar days overdue, we mark the loan as being in default for internal monitoring and investor updates.
Regulatory definition: under FCA rules a P2P loan is officially “in default” at 180 days in arrears. We act far sooner to give recovery the best chance of success.
Capital at risk: default status means the loan is more than 14 days arrears of interest payments or that is has not been repaid in line with the contractual maturity date of the loan and capital repayment is uncertain until recovery is complete.

We typically lend up to 60 % LTV as a prudent buffer against market drops.
We obtain independent RICS valuations.
Experienced receivers and solicitors from our independent panel handle any required enforcement.
Multiple exit routes are assessed to protect investor outcomes.

Interest during default: increased interest accrues as per the terms of each loan contract and is paid after costs and capital if sufficient funds are recovered. There is no guarantee that any owing or accrued interest will be paid.
Timeline variability: different recovery strategies will take different timeframes. Some can be rapid others very slow. We keep you informed throughout.
Potential shortfall: if the security sale or other recovery strategy does not recover enough funds to cover enforcement or other applicable costs and fees, outstanding interest, and capital, investors will experience a loss.