Hey, does anyone here have experience with P2P lending?
I’ve decided to allocate about 35-40% of my portfolio to P2P loans to achieve a monthly cash flow of €100 (12-13.5% P/A) (before taxes). After some deliberation, I concluded that I would only use Mintos, and even there, I would limit myself to the most reliable loan originators that offer a buyback guarantee for loans and also pay interest on overdue loans. I only invest in loans with a maximum duration of 3 months, so the entire portfolio can be withdrawn with only 3 months’ notice, in theory. I found this to be the most sensible option while I’m still getting acquainted with the world of E- and M-REIT stocks, which I already have some of in Degiro.
What kind of experiences do you have with P2P lending? How would P2P lending behave in a crisis similar to 2008?
It seems to be such a new phenomenon that there’s no experience with recessions/depressions. Diversification is also necessary in peer-to-peer lending, and it’s gone quite well in my experience, through Fellow Finance (FF). I’ve concluded that there aren’t many effective ways to counter a recession, mainly just diversification. According to the recommendations of industry players, I’ve diversified into about a hundred different targets, 75% of which are business loans. As the total amount of invested euros grows (through interest income + additional investments), the size of individual investments needs to be increased. At the beginning of the year, FF had a clear shortage of business loan targets from an investor’s perspective, but now the situation is more favorable. A couple of business loan investments have gone to legal collection, and that route seems to be quite slow, so we’ll see how I get my money back from there.
I wonder if Interes’s €10 target price was taken from some utopia. The share price has barely risen above €8 during its entire time on the stock exchange. Was it time to review the value and also the calculation formula?
The number of repaid loans seems to be increasing as time goes on. I’ve been a lender for a year, and the number of unpaid loans has consistently grown. In one year, I’ve achieved a 5% return. The promises were almost double that. I’ve started reducing my loans.
Here too, I think the odds are being looked at a year out, but I agree that these forecasts will probably have to be revised downwards a bit if the same kind of “development” continues
During a recession, it’s difficult to see almost any asset class as a very attractive investment, and I likewise don’t believe a recession will do any good for peer-to-peer (P2P) lending as an investment. I also don’t see any other way to protect oneself from a recession in P2P lending than by diversifying loan investments. For example, if you invest in 500 loans, it’s unlikely that all 500 borrowers work at the same workplace. Geographic diversification could also theoretically work as a protective measure - a recession might not hit every country where, for example, Fellow operates, with the same intensity. The portfolio can also, of course, be built from loans with high credit ratings. Time will tell how the industry performs in a recession; it’s good to speculate and outline different scenarios in one’s mind.
A small addition: it’s different to look at the issue (recession) from the perspective of, for example, a fellow shareholder compared to a loan investor. Let’s imagine a global recession similar to the 2008 financial crisis. Fellow Finance would suddenly start experiencing increased credit losses. Loan investors would raise market interest rates, which would negatively affect the platform’s attractiveness from the borrowers’ perspective. The number of borrowers would decrease, and since Fellow’s revenue is practically entirely made up of fees charged to borrowers, Fellow’s revenue growth would stall. This would naturally manifest as a falling stock price and reduced future dividends.
The situation might not be as dramatic from a loan investor’s perspective. Credit losses would materialize in the portfolio, some more, some less. This would lower the annual return, but the rising market interest rates set by investors would somewhat compensate for this. This is also just one scenario and might not hold true in real life.
As long as collection agencies are doing well, the lending business also thrives, for example, in Fellow’s case. Weakening repayments put pressure on the sales contract. At the same time, customers already have several cases in collection, making additional loan purchases increasingly risky for collection and discounted cash flows more uncertain. Poor economic development will accelerate this trend. The average loan size in the industry is also constantly growing, which collection agencies do not want. This, in my opinion, is continuously the biggest risk in peer-to-peer (P2P) lending.
In my opinion, P2P loan returns should be able to withstand a reduction caused by falling sales prices. I believe that, for example, in Fellow, investors accept too low rates of return. You can’t do much about the created loan portfolio if credit losses take a step higher and losses start to increase in your own portfolio in the future. A stair-step increase in credit losses makes other asset classes more attractive, and investment capital will likely vote with its feet.
I have a little over €20,000 in my P2P lending portfolio, and I receive approximately €200/month in gross interest. I haven’t had any credit losses for many years, and the previous ones I did have were from Lainaaja and Bondora.
The two largest marketplaces are Mintos and PeerBerry, accounting for about 95% of my P2P lending investments. Diversification is important, as is choosing a reputable loan originator. So far, things have been quite steady.
It didn’t quite work out like that. Money just flows into these riskier investments from somewhere. Interest rates have actually remained at the same level as they were all summer. It’s possible that in this era of consumer credit regulation and zero interest rates, the direction will only be downwards for these returns as well.
Currently, just over 7% of net worth. The reliability of loan originators operating through Mintos can be assessed via explorep2p.com. A few loan originators operating through Mintos have gone bust, so it’s important to choose a loan originator carefully. The mere existence of buyback is not enough.
Cash flow is indeed nice and steady. I wouldn’t really bother putting more than 10% into these, as the risk level is higher than in stocks. It’s also unfortunate that interest is taxed annually, which slows down portfolio growth.
Interest rates in these also vary cyclically. Sometimes it’s difficult to get even 10% interest on Mintos, while at other times you can get up to 16% interest from good borrowers. However, those higher interest loans are often repaid prematurely. I think I made my first P2P investments back in 2012, so I’ve had experience with these since then. On average, the annual return has been around 12%, and it seems that this is a realistic long-term level to expect (although 30% of this still goes to the “bear”).
I’ve dared to put 30% of my investments, about 80 thousand.
It’s starting to be a nice monthly income, over a grand for a long time
Diversification is across 17 different sites.
I’ve also had a small stake in Mintos.
Could more experienced users clarify how peer-to-peer lending taxation works? I haven’t withdrawn anything from the service yet.
I found one tax authority instruction that states taxation only occurs when withdrawn to one’s own account, but what was this SamiK comment about “interest being taxed annually”?
At least I have reported interest received from Mintos in MyTax as follows: Interest income, from Latvia, and no other specifications, just the total interest amount for the year. Easy and nice, unlike reporting Degiro trades, where every single trade has to be manually entered into MyTax, and then also checking the current exchange rates from the ECB’s website, if the trade is in a foreign currency. It was advertised here online that it’s enough to print out the statement of transactions from the broker and the tax authorities will handle it, but apparently, it’s not their responsibility. But now I think I’ve deviated from the topic quite badly.
That study only concerns one American platform called Lending Club. Another service provider established before the financial crisis is the British Zopa, founded in 2005. If their own blog is to be believed, a recession doesn’t seem to have much of an impact: Zopa’s performance during the 2007/8 recession
