Amongst all the online investment platforms available today, P2P 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 most popular loan platforms in Europe.
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. This is a good resource: http://explorep2p.com/mintos-lender-ratings/
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.
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.
Have you invested in p2p loan platforms? What has been your experience with these platforms?