On this P2P lending glossary page you’ll find all the important terms you’ll encounter as an investor in P2P lending platforms around the world, with Mintos being my favorite platform. If there are any other terms I missed out on, let me know and I’ll add them in.
AML – Anti-Money Laundering. It refers to a number of policies that governments, banks, and financial institutions have to abide by. They are obligated to proactively monitor clients and new customers so corruption and money laundry can be prevented. They also have to report any kind of financial crime. When you as an investor are asked to supply picture id, address id and documentation on where the funds you are investing are coming from by e.g. supplying bank statements and copies of your paychecks, this is part of the AML procedures.
Auto Invest – a tool for automated purchases of Claims on the Platform, functioning according to the User’s selected settings and used by the User to purchase Claims on his/her own behalf in accordance with the selected settings.
Borrower – a natural person or legal entity, wherewith the Loan Originator has concluded a Loan Agreement
Buyback Guarantee – a buyback guarantee is a guarantee usually issued by the loan originator to the investor for a particular loan, that confirms the loan originator will repurchase the loan from the investor if that particular loan is delayed by more than a particular number of days, typically 60 days.
Cash Drag – money sitting in your P2P lending account that is not being lent. This is usually due to the platform not being able to offer any loans that match your Auto Invest criteria.
Crowdfunding – financing a project through a crowd of people instead of the traditional route of bank loans.
Crowdlending – a form of investment in which a group of people lend money to individuals or companies in exchange for interest, usually through an online platform.
Default rate / Delinquency Rate – the ratio between the value of defaulted loans and the value of the total loan portfolio.
Invoice Financing (also factoring) – a way for businesses to borrow money against the amounts due from customers invoices. When a business sells a product or service to a customer or another business, it often happens on credit in the form of an invoice with a number of days until the amount owed is due.
KYC – Know Your Customer, alternatively known as know your client or simply KYC, is the process of a business verifying the identity of its clients and assessing their suitability, along with the potential risks of illegal intentions towards the business relationship.
Loan Agreement – a loan, lease, credit agreement or a financial arrangement of different nature concluded between the Loan Originator and the Borrower.
Loan Originator – a lending company which is the Creditor, who, in compliance with the co-operation agreement concluded between the Creditor and the Platform, has authorized the Platform to transfer the Loan Originator’s Claims towards the Borrower, by using the Platform, and on behalf of the Creditor, to take other steps prescribed in the Agreement and in the Assignment Agreement.
Loan-to-Value (LTV) – refers to a ratio between a loan amount and the collateral’s market value. An LTV ratio of 50% would mean that collateral’s value is twice that of the loan.
Primary market – market in which we investors purchase loans or shares from the platform or loan originator.
Principal – the amount of money you originally put into your investment and now earn interest on in return. When you borrow money, it refers to the amount of money you borrow, excluding interest payments and fees.
ROI – Return on investment (ROI) is a financial metric used to analyze the efficiency of an investment. ROI = profit from an investment / investment cost, and is usually expressed as a percentage.
Secondary market – a facility that enables investors to trade loans between themselves. The secondary provides a mechanism to quickly sell your shares or loans for quick liquidity, and also provides a place to grab some good deals, since other investors might be offering shares or loans at a discount in order to achieve quick liquidity.
SEPA transfer – short for Single Euro Payments Area. It’s the newest format for cross-border Euro bank transfers. SEPA aims to make cross-border Euro transfers within this area equivalent to a domestic transfer within your own country. You should always use SEPA if available over wire transfers as they are faster and cheaper.
XIRR – a financial function that returns the internal rate of return (IRR) for a series of cash flows that occur at irregular intervals. It is commonly found in spreadsheet programs such as Microsoft Excel.