Amongst all the online investment platforms available today, peer to peer loan platforms are the ones which offer the highest returns. That, of course, comes with increased risk. Let’s have a look at how P2P loans work and which are the leading platforms.
The traditional way of getting loans was to go to a bank, describe why you need the loan, show your assets and submit an application. You then had to wait days or weeks until you receive a decision from the bank. They would offer you the terms, including probably the most important factor which would be the interest rate.
After the financial crisis, many banks became much more restrictive in who they give loans to, especially in certain countries. This left a lot of people and businesses in dire straits as they had nowhere to go to in order to obtain much needed capital to make important purchases or investments. This also created a situation where many investors in the Western Europe (e.g. Germany, UK) were flush in cash, and on the other hand you had people and businesses in Eastern Europe (e.g. Latvia, Lithuania, Georgia) who were suffering due to the difficulties in obtaining financing.
P2P platforms solved these problems by providing an alternative to banks. Investors now had no borders and could easily invest in loans outside of their countries at very good returns, because there was so much demand. In this way everyone is a winner. The platforms themselves take a cut when loans are re-sold on the secondary market.
Typically you will see different kinds of loans, some with no guarantee and others with some kind of guarantee. For example, if the loans you invest in have Buy Back guarantee, then the highest risk is for the P2P lending platform to go bankrupt, and that can happen because of many reasons – bad management decisions, competition or scam.
Typically platforms service the loans and receive payments from the borrowers. Then the received payment is divided proportionally according to the amount of investment between all investors that have invested in the particular loan.
As soon as the borrower, whose loan you have invested in repays his loan, you will start receiving payments of both the principal sum and the interest, for the investment period. They will be automatically transferred to your account. You can reinvest the received money in any available loans or request a payout directly to your personal bank account.
For each loan, the date of its repayment has been set, so the investor will receive money in his account according to the regularity of payments made by each particular borrower.
Let’s have a look at some of the best loan platforms in Europe, based on my experience.
This is by far my favorite platform.
The interface is great; everything is understandable and you don’t need to fish around for data. You get a daily report in your inbox and you can also use the auto-invest functionality, which I always do.
It has a solid secondary market which provides investors with liquidity. If you want to sell off your loans at any point, you can put them on the secondary market, choosing whether to apply a discount (making them more attractive) or add a premium (less attractive). If you want to sell quickly, applying a discount is the best way to do this.
The minimum investment in any single loan on the primary market is EUR 10, DKK 80, GEL 25,PLN 50 or CZK 300. There is no minimum for investments in the secondary market.
You have to be careful when setting the auto invest parameters on Mintos. Check out the Mintos lender ratings post on Explorep2p to see which are the most trustworthy lenders on the platform.
The income earned at Mintos is taxed for each investor based on legislation of the respective country where the investor is a tax resident. Each investor can receive extensive information necessary for tax returns when logged into their Mintos investor account.
Companies can also invest through Mintos without any problem. There are specific documents that need to be provided in order to comply with AML legislation, but it’s pretty straightforward.
It’s been three years since Mintos launched, and they have turned an annual profit for the first time last year. In 2017, revenue increased more than four-fold to over EUR 2.1 million and net profit was EUR 196 000. This means a lot for me as an investor. It means that the company has a proven business model and won’t be disappearing tomorrow, as many others have done.
During 2017, Mintos experienced significant growth, making it the peer-to-peer lending market leader for continental Europe with a 38% market share according to AltFi Data. Since their establishment, they have exceeded EUR 660 million in cumulative investments by investors and they expect the amount of loans funded to reach EUR 1 billion by the end of the year.
In 2017, Mintos made considerable investments in technology, people and the marketplace, making the service even more convenient for investors. Last year they launched a currency exchange featuring transparent exchange rates and fair fees, which allows investors to exchange money at a lower cost than through banks. As a result of this investment in growth, the number of investors on Mintos also grew rapidly. As of May 2018, 58 000 investors had joined the marketplace and they expect to reach 100 000 investors by the end of the year. Again, as an investor, this is reassuring, as I know I’m not alone using this platform, but I’m joined by tens of thousands of others like me.
Currently, Mintos has three offices employing 50 people in Riga, Warsaw and Mexico City, with offices shortly opening in Brazil, Russia and South East Asia. By the end of the year, they plan to double the number of their employees.
In 2018, Mintos is focusing on growing both sides of the marketplace by increasing investor demand, as well as loan supply from current and new locations by expanding the investment opportunities on the marketplace in Africa, Latin America, and Southeast Asia. We have already seen some results of this drive.
Twino is my second favorite platform and works very similarly to Mintos. The biggest difference is that there are more loans available on Mintos.
With the help of TWINO, you can invest in unsecured consumer loans that have been issued by TWINO Group lending companies in 5 different countries (Poland, Georgia, Denmark, Spain and Russia).
TWINO does not charge investors any fees. TWINO makes its profit from the spread between the interest rate charged to borrowers and the interest rate offered to investors.
Currency for your TWINO account will be set depending on the currency of your first deposit. In case your first deposit is made in GBP, all operations under your account will be held in GBP. All other currencies will be converted to EUR and your account will operate in EUR. TWINO accepts all currencies. Payments received in currencies other than EUR and GBP will be converted to EUR. Payments received in currencies other than EUR and GBP will be converted to EUR by the Swedbank currency exchange rate.
TWINO offers support on weekdays from 9 AM to 6 PM EET via email, phone or Skype chat.
Within TWINO you will see a XIRR percentage figure, which gives you an idea about how your investments are doing. XIRR is the annualized internal rate of return, which shows your current portfolio yield at a given date. However, bear in mind that it takes into account only the received payments (deposits, withdrawals and interest payments), not the interest payments that you will receive in the future. XIRR and all interest rates are shown in annual terms. The XIRR number is reliable once the interest payments from all the loans in which you invested a deposit have been received.
Here’s a good resource for discussions on p2p loan platforms that’s worth checking out if you’re interested in getting into any of these platforms or want to learn about other similar ones.
If you’re interested in trying out peer to peer loan platforms, I suggest you start off with Mintos. I’ve been able to consistently achieve returns higher than 10% across the past two years, and so have my friends who are also invested in this platform. If you have any questions about Mintos or Twino, or how the model of peer to peer loans works, please leave a comment and I’ll do my best to answer your questions.
Have you invested in p2p loan platforms? What has been your experience with these platforms?