Since I had some funds freed up from PeerBerry and I didn’t want them to sit idle, I’ve decided it’s time to test out a few p2p lending platforms I had in mind for a while now.
Why aren’t peer to peer lending platforms truly passive
I’ll start by contradicting myself. Peer to peer lending is by itself a passive investment. You don’t actually look for borrowers. You just add money to your account and select pre-existing loans to invest in. Or you set an auto-invest profile in order to reinvest the interest payments coming into your account.
To me, however, it doesn’t always feel “passive”.
Whenever there’s a new loan available, I need to read the project details, weigh in pluses and minuses, and decide if I want to invest or not 50-100 EUR. That takes time. And the 100 EUR minimum is a bit too much to set an auto-invest profile and let it invest in everything. And even if I wanted to set up an auto-invest profile, I can only do it on EstateGuru and Crowdestate anyway.
Even on Mintos, where I do use an auto-invest setup, I need to log in from time to time to tweak the auto-invest settings, maybe sell some loans I don’t like, maybe buy something manually on the secondary market. I don’t really need to do it, yet I still do it. Because I’ll get that 0.1% more on my annual return, and for some reason it makes me feel better.
What it would take to make p2p investments truly passive
One idea would be to use platforms that don’t let you invest manually in anything. Or if they do let you, you should get lower returns or lose some advantages you have when you use an auto-invest setup.
And let me tell you why.
You can invest in some auto-invest setups that have an expected annual return from 5% to 11%.
The setups are the following:
– 5% return: you can retrieve all your funds in 7 days without losing any interest gained; the investment term ranges from 1 month to 1 year
– 7% – you receive your funds in 30 days with 5% interest or in 60 days with 7% interest; investment terms from 2 to 60 months
– 9% and 11% – you receive your funds back in 90 days without interest, and you receive interest earned each 30 days; investment terms from 6 to 60 months
I admit, their offering is a bit over complicated. If they have an 11% offer, nobody would choose the 9% one.
If you’re a VIP customer, I heard you can also see a 12% return option. I’m not, but apparently, if you use my referral link, you’ll see it.
So, how is doFinance different from any other p2p lending platform out there?
Besides these auto-invest options, they do offer you the possibility to manually invest in individual loans. With a catch. 2 of them actually.
The first is that you can only invest in loans with a 5% to 9% interest rate. So, you’ll get worse returns than if you invested automatically with the 11% setup.
The second is that you cannot cancel the loans if you want to exit your investment earlier. You’ll need to wait until the loan matures to recover your invested capital.
These are 2 big incentives that will definitely stop me from ever investing manually on doFinance.
Robo.cash makes it even harder for you to invest manually. You just don’t have the option.
You set up your auto-invest profile, set expected interest rates between 11% and 15% (currently all rates are at 12%), and then whatever funds you add to your account are automatically invested.
No manual investments, no complicated options to choose from.
And you can withdraw your funds anytime you want.
Assetz Capital is a bit different than doFinance and Robo.cash.
One difference is that while the first two offer only payday loans to invest in, Assetz Capital offers only business loans.
So, it helps to create jobs that in the end have a multiplier effect in the economy. This means that every 1 GBP invested in a project here will have a trigger effect that will generate in the end more than 1 GBP in the economy.
For example, let’s say a company needs capital to build a new factory. The loan is funded, and the factory is built. In the new factory, there will be workers that at the end of the month will get a paycheck. With that paycheck, they’ll buy more food from the local grocer, who’ll finally be able to expand and hire new staff to cover the new demand. The factory workers will also spend more money on clothes, and new stores will open nearby. And so on, that’s the multiplier effect a business loan has in the economy.
On the other hand, payday loans only fund consumer needs. Even if in the short run they increase demand for some products, the demand will decrease back when they’ll need to repay the loan. Even more, because of the prohibitive interest rates they managed to get the loan with, the local economy will lose a lot more on the long term. So, one could say payday loans have a negative effect on the economy.
There’s a bigger debate than this, and payday loans do have their use in the economy, as long as they’re fair. The borrowers can’t get the loans from somewhere else and the lenders do need high-interest rates to cover for the risk of default.
But enough of this. Let’s get back on Assetz Capital.
One other difference between the first two platforms and Assetz Capital is that it offers lower returns.
Yes. You can get up to 6.25% annual returns if you invest in one of their automatic investment setups.
Or, you could invest manually and expect up to 15% returns. The currently available interest rates are between 4.5% and 11.9%.
So, why not invest manually in Assetz Capital loans?
Because of the higher risk involved. All the automatic setups have a provision fund that covers any losses due to borrower default. The manual investments don’t have a provision fund.
In case of default, you’ll need to wait and see if the borrower has enough assets to pay back your investment. All loans are secured by land or property, with an LTV ratio between 50% and 75%, so you should get back your funds eventually.
I admit, now that I write it, I’m not sure the auto-invest options are really that good. I might be tempted to manually invest in every loan available just to make sure I get better returns than the auto stuff. But then I’ll probably get something close to the 6.25% return from one of the auto funds.
Anyway, these are the options Assetz Capital offers:
– Great British Business Account – the target interest rate is 6.25%. If it’s more, it will be stored in the provision fund (the same goes for all the other auto-invest funds). Automatically invested in loans with asset security. Loan terms from 6 months to 5 years. Loans secured with first/second charges over land or property. Maximum LTV ratio is 75%. The expected loss is 0.25%, and the provision fund covers 4.15 times the expected loss. The current size of the provision fund is 474.000 GBP (as of December 2018).
– Property secured account – the target interest rate is 5.5%. Loan terms from 6 months to 5 years. Maximum LTV ratio is between 50% and 72%, depending on the type of property. Provision fund is currently at 322.000 GBP. The expected default rate is 0.3%, and the provision fund covers 5.10 times that.
– 90-day access account – the target interest rate is 5.75%. It invests in short-term secured business loans form less than 1 month to 5 years. It’s a new account type and has a provision fund of 300.000 GBP.
– 30-day access account – the target interest rate is 5.1%. The expected default rate is 0.58% and the provision fund (2.5 million GBP) covers 4.23 times that.
– Quick access account – the target interest rate is 4.1%. The expected default rate is 0.58% and the provision fund (1.4 million GBP) covers 4.23 times that. This is just a type of fund where you put money for a really short term until you find a better use for them.
Why would I invest in any of these 3 p2p lending platforms?
doFinance is a direct competitor of PeerBerry. Since I have funds invested with PeerBerry, it would make sense to cover my investments by adding funds to both platforms. They fight for the market, and I win either way.
It’s part of Alfa Finance group, and it only offers loans originated from lenders belonging to the same group (KreditCepat, TaniKredyt and Opoqa Finance). So, I’m investing in loans from Poland, Georgia and Indonesia. The 3 markets are different enough that their ups and downs are not correlated.
While I don’t like payday loans, Alfa Finance seems like an interesting company. They’re currently hiring – QA engineers, full stack developers, data scientists, so they must be doing well.
All the loans have a buyback guarantee. I don’t see payment delays because o loan is late. At the end of the loan term, it’s bought back by the loan originator, so I don’t need to know if that specific borrower was late or not.
If you want to register on doFinance, you need to be a resident of an EEA country. Although you can also select China, India, Japan, Malaysia and Thailand when you create your account. I don’t know if that’s a mistake or you can invest from one of these countries.
Robo.cash is a bit similar to doFinance. It’s part of Robocash group, and it only offers loans originated from platforms belonging to the same group.
What I like most about Robocash is that it’s a profitable company. They make available their financial statements and so far, they’re growing more than 100% every year.
While they’re a large company with more than 1500 employees, they make use of automated technologies and credit scoring based on machine learning to streamline their processes. It also sounds like a cool company.
The Robo.cash lending platform was opened in 2017 and it’s used to fund the growth of the lending companies belonging to Robocash group.
I get to invest in a rather cool company and get a 12% interest rate on my funds.
If you want to register with Robo.cash, you need to be a resident of the EU or Switzerland in order to do so. The minimum investment is 10 EUR, and there’s also a cap at 10.000 EUR per year.
Apart from my belief that business loans bring good to the world, Assetz Capital is a mature platform with more than 30.000 active investors and more than 70 million GBP interest earned so far by its investors.
The provision fund offered with the automatic investment options gives me enough confidence my funds are safe in the long run.
I also like that they’re open regarding the limits of their provision fund. They disclose how large it is and how many defaults it can cover. So, I’m relatively sure in case of an economic downturn they won’t default because they were not prepared.
Depending on the fund I’m investing my money in, I can get hold of my invested capital relatively fast and invest it in something better without losing any interest earned.
I’m also interested in p2p lending platforms from the UK because I believe my investments will get a boost from currency appreciation when all the Brexit drama is over.
How are my test investments doing so far?
I’ve invested 100 EUR last month in the 7% and 9& auto-investment funds. Then, doFinance decided to add back its 11% interest fund, so I’ve added 50 EUR to this fund as well.
I’ve already requested a withdrawal for the 7% interest fund. Because I want to keep the 0.17 EUR income, I’ll be able to withdraw those funds on May 31st.
I’ve added 500 EUR to my account and so far, I’ve earned 0.42 EUR interest. From a revenue point of view, Robo.cash should be the top performer, with its 12% interest rate loans.
I’ve invested 100 GBP in 3 different funds with an average interest rate of 5.87%. It doesn’t look that much, but I’m mostly watching it and see how the actual returns compared to the expected ones. I’ll decide later if I want to add more to this platform or not.
Most of my funds are invested in the 90-day access account because it will give me an additional 1% cash back at the end of the 90 day period (special promotion). In addition, any funds invested until October 2019 will also get a 1% cash back, so my actual return should be close to 8% per year. All passive.