When I was starting investing in p2p loans and lending, it was really quite new and fresh type of investing in Europe. My first investment was in Bondora, which looked quite different from what it is today. Than it has speeded up and more companies came to my attention, for example Mintos, Viainvest and so on. Today, we have really a lots and lots of p2p companies in Europe and many of them are just coming to the market. I have teste many of them and have my funds in dozens of these companies, so I will share my experiences, numbers and opinions on them.
P2P loans – what it really is
P2P generally means peer to peer, so simply human to human. It is really an old expression, which was used in a lot of contexts. In this case, in p2p investing and lending, it is the same but we are talking about moving money from lenders to the borrowers. So from investors to debtor. More investors are just collecting their money to invest into one borrower. Every platform got its own rules, but for example, if borrower is getting a loan of 200€ and minimum for investing into loans in said platform is 5€, than borrower can get money from maximum 40 investors.
You, as an investor, can in that case with capital of 500€ distribute your money into dozens of borrowers. Why is it like that? You are diversifying your capital and lowering a risk. If you would invest all of your capital into one person and he/she would stop paying installments, you lost all of your money. In p2p game, it is all about statistics. You can find overall statistics for some of the p2p companies and make your own math. How much of the defaulted loans are paid back? How much of the loans even go to default? And so on. If you have really big portfolio, your numbers will be really close to the overall stats.
It is also important to emphasize, that borrowers are distributed into rating groups. Means, into “risk” groups. This distribution method is taken from banks and is pretty accurate. People are distributed in relation to their income, source of income, expenses and so on. There are these rating groups: AA, A, B, C, D, E, F, HR. AA is the most reliable, low risk and nearly with 0 default rate. Also, interest here is pretty low, somewhere between 1 – 5% p.a. HR being the high risk – people with small income, no salary, high expenses and other loans, self-employed and so on. Here is high default rate but also high interest.
P2P companies and their differences
As I said, companies, which offer investing into p2p loans are plenty. I am actively investing in dozens of them and I am always preparing new for you, as I am in a lot more investing opportunities, that I am writing about here. There is a lot of differences between them and every one of them has its own pros and cons. In detail, we will see all of them in separate articles, right now, let’s see the basics.
Interest – of course, every platform has different interest and every one of them have different borrowers or projects they are offering investing to. Some don’t even have lower rating groups and they are only offering low interest with low risk. It is your choice between good risk and profit. These companies that I am presenting have all very good ratio risk-profit, therefore I recommend them.
Min. investment – some have 1€ minimum to invest in one loan, some have 10€, those, who have also projects and business loans usually have 100€.
Ratings – as already mentioned, some companies don’t even have lower rating classes. Some are offering different guarantees, so you don’t have to worry about rating.
Type of loans / funding – projects, business loans, personal loans, low-term loans, you name it. Every has its own pluses and minuses.
Buyback / Payback / Default rate / Recovery rate – every firm deals with defaults with different approach. Some buys it back, some buys it with interest and late fees, same don’t at all. Some have publicly available their recovery rate, so you can see, how many loans in default they can recover. It depends on your risk profile, which are better for you.
Other – many other differences. Origin, age of company, background, owners etc.
Conclusion
Peer to peer loans are the type of investment, that offers very good interest rate and provide low risk at the same time. Risks are here on the shoulder of loan originator, the company itself and on a borrower. In p2p loans you have the opportunity to diversify your portfolio very well, invest in many different debtors and many different companies. This is what I do. I have most of my capital (over 80%) in this type of investment for many years now and I cannot say anything bad about it.
