# Peer to Peer lending as an investment



## murphaph (30 May 2013)

Hi all,
I'm looking at our savings interest rates tumbling ever lower (not too annoyed as have a similar amount on an outstanding tracker!) and I started looking at alternatives.

I came across the likes of ZOPA, where you basically lend money to people who want to borrow. Has any one got any experiences of this sort of thing? A website in Germany (auxmoney.de) suggests that returns of 12% are to be had.

They essentially function as banks used to, as a middle man between depositors and borrowers. The borrowers basically say "I want x amount to do y. I earn z and my outgoings are such and such". Their credit scores are displayed and they can further guarantee the loan with their car. depositors then offer a certain amount of the required sum. At the end of the term the depositor gets his portion plus interest back, via the website, which takes a cut.


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## Eeyore (30 May 2013)

I did some investigation into this a few months back and came across [broken link removed] who are an Estonian company but they are the first to allow investments from any euro area country.

They are 5th in the following list of the top 10 peer-to-peer lenders in europe.
http://www.forbes.com/sites/groupthink/2013/04/23/crowdfunding-in-europe-the-top-10-peer-to-peer-lenders/

I have been investing a small amount with them to see how it works out and I'm very happy with the results so far. I have no connection with this company other than as as a customer.


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## tvman (30 May 2013)

What kind of returns/default rates are you getting. I would have thought that transaction costs (because of the small size of each loan) and defaults would make this kind of investment pretty poor compared to other types of fixed income investments.


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## serotoninsid (30 May 2013)

What are the % returns with these peer to peer lending options?  How can you go about assessing the level of risk with this type of thing?  In what way is it regulated?


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## Eeyore (30 May 2013)

I am getting between 15% and 28% return on each loan. The investment is sliced up into a large number of small loans (25 euro each in my case) which helps to mitigate the risk of default on any one loan. You can decide the minimum rate you will accept and the minimum loan period.

There are no transaction costs. I can transfer money from my Danske Bank account, make investments and transfer money back all with no cost. They make their money by taking a fee from the borrowers.

Assessing the risk of this type of investment is difficult as its such a new area. According to their statistics 2.86% of loans to borrowers with the best credit history are 60+ days overdue. I wouldn't put a large percentage of my money into this area but I am very interested to see how my small investment does over time.


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## mercman (30 May 2013)

Reminds me of something like Banners Brokers. You pays yer money and take your chances !


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## tvman (31 May 2013)

Eeyore said:


> I am getting between 15% and 28% return on each loan. The investment is sliced up into a large number of small loans (25 euro each in my case) which helps to mitigate the risk of default on any one loan. You can decide the minimum rate you will accept and the minimum loan period.
> 
> There are no transaction costs. I can transfer money from my Danske Bank account, make investments and transfer money back all with no cost. They make their money by taking a fee from the borrowers.
> 
> Assessing the risk of this type of investment is difficult as its such a new area. According to their statistics 2.86% of loans to borrowers with the best credit history are 60+ days overdue. I wouldn't put a large percentage of my money into this area but I am very interested to see how my small investment does over time.



Do you mean borrowers are paying 15 to 28% interest plus the full admin cost plus profit margin to the company? - and these are borrowers with good credit histories - that seems pretty high


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## Eeyore (1 Jun 2013)

Yes. The fees are detailed here:

[broken link removed]


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## Rory Gillen (12 Jun 2013)

If it sounds daft, it probably is daft. Good luck if you can get those rates but can you picture the guy who needs to pay those rates!


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## jacal1 (16 Jul 2013)

Crowd funding can certainly pay off, and as is mentioned here the money is often split between many different investments to minimize risk.  I'm surprised by the interest you are receiving because often the reason why "low-risk" people turn to this type of funding is to get a better rate than the bank would give.  These high returns are usually found when the reasons people are turning to the crowd have to do with being turned down by the bank and having no other options making them higher risk for default.


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## MrEarl (17 Mar 2016)

Hello,

I was surprised that there was no "live" discussion on P2P lending here on the site, with this thread being over 2-years old, but anyway....

Can somone please answer a couple of questions for me about P2P lending ?

- What, if any, financial information do you get on the Borrower ?
- What, if any, debt servicing calcuations are done ?
- Are there any restrictions on the Borrower subsequently going off and raising further debt (and if so, who monitors / controls this ?)?
- What information is provided on the Borrower, once the loan is drawndown (i.e. to ensure they are not struggling financially, that they are keeping their payments up to date for all lenders etc) ?
- What security is taken for the overall loan and who arranges / controls this ?
- What happens if a Borrower falls into arrears (is the debt restructured / is security enforced and who is responsible for arranging all of this ?) ?

Many thanks.


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## Steven Barrett (18 Mar 2016)

Charlie Weston tweeted that he was going on The Last Word to talk about P2P lending, given that deposit rates have fallen. 

People who see P2P lending as an alternative for deposits do not understand the concept of risk and return as the two of them are at either end of the risk spectrum. 

Giving your money to a start up that cannot raise finance from a bank is very high risk investing, with a good chance that you will lose all of your money. if you are prepared to take that kind of risk, you want to make sure that you will be rewarded for it. A venture capital fund would look for a minimum return of 20% per annum to invest. You should look for the same. 


Steven
www.bluewaterfp.ie


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## jim (18 Mar 2016)

Hi Steven,

Just 1 point re your post....I used P2P for a couple of years in UK it was called "Fundingcircle" and I recall that the businesses were rated AAA to CCC or something like that based on various criteria....the better rated business (AAA) got you a lower rate of return because they were less risky and so on. I think that some of the business would have been able to get bank funding but were availing of P2P because for them it was cheaper finance so its not always business that cant get finance from banks.


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## Gordon Gekko (18 Mar 2016)

I've invested in a fund called CVC Credit Euro Opportunities with a view to benefiting from disintermediation. I don't have the time or the bandwidth to assess non-standard lending opportunities, so I believe in outsourcing it to someone who does.


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## thedaddyman (18 Mar 2016)

There is an Irish website called LinkedFinance which does a P2P lending for the SME sector. I've no involvement with the backers of the site and/or any of the borrowers on their but have lent a few hundred euro to a small number of borrowers and to date, it's all gone fine. Return for me is a shade under 9% p.a so far


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## jim (18 Mar 2016)

that seems like a very good return daddyman. do you know is that net of bad debts, the websites fees etc? with funding circle I think I had a gross return of about 8% but after bad debts and fees it was more like 5.5% which was still relatively good.

with fundingcircle I didn't have to cherry pick the business although I could have if I wanted to. there was a function whereby I selected my risk level and the website chose the business - it was something like that anyway.

all in all though it was a decent investment for me at the time and I would probably do it again but in Ireland.


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## MrEarl (18 Mar 2016)

SBarrett said:


> ....A venture capital fund would look for a minimum return of 20% per annum to invest. You should look for the same.
> 
> Steven



Funny, I would be tempted to look for a greater return, because:

- VC companies tend to get a seat (or possibly two) on the Board, so are closer to the heart beat and have some ongoing influence on the company they have invested in.

- Often have investments that either begin as, or can be converted to, ordinary share capital so can give voting rights in the event of an issue arrising

- VC companies are probably more selective in who they invest in, than some of the P2P "middlemen".

I put a list of questions on this thread a few days ago, but sadly no one has answered any of them to date, despite a couple of people saying they have placed investments / granted loans, via P2P schemes.  That makes me wonder, was I being too direct in what I was asking, or do people simply not know the answers but have elected to take a chance ?

Anyway, here they are again ... just incase those who have used P2P might have missed them the last time.  Any responses would be much appreciated.



MrEarl said:


> Hello,
> 
> I was surprised that there was no "live" discussion on P2P lending here on the site, with this thread being over 2-years old, but anyway....
> 
> ...


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## jim (19 Mar 2016)

Hi MrEarl,

Apologies I missed your questions 1st time round....Here is my tuppence worth in light of my minimal experience with fundingcircle (FC)..


- What, if any, financial information do you get on the Borrower ? 
FC provide summary financial information of the business...cant remember exactly what but am fairly sure it was re turnover, profitability, assets and liabilities. Not sure if this info was audited but i assume FC had some due dilligence done on it.

- What, if any, debt servicing calcuations are done ? 
Not sure I understand the question...FC provided a repayment schedule.


- Are there any restrictions on the Borrower subsequently going off and raising further debt (and if so, who monitors / controls this ?)? 
dont know


- What information is provided on the Borrower, once the loan is drawndown (i.e. to ensure they are not struggling financially, that they are keeping their payments up to date for all lenders etc) ?
None as far as i remember. I used to get a notification from FC if there was a delayed repayment etc. FC would chase up payments.


- What security is taken for the overall loan and who arranges / controls this ? 
None as far as i remember...you are investing money in business at a given rate of return...if the company goes bust you dont get money back....i was investing say £100 in FC, FC would then buy, say, 5 lots at £20 each of loans off 5 different business so the risk was spread around and i would get an averaged rate of return. 



- What happens if a Borrower falls into arrears (is the debt restructured / is security enforced and who is responsible for arranging all of this ?) ?
if they fall into arreasrs FC would deal with that in trying to get them back on track, i would either have to wait a bit longer for repayment or they go bust and my £20 is written off as a bad debt.


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## losttheplot (19 Mar 2016)

Are you also liable for tax, PRSI and USC on the income. So 9% would be reduced to about 5%. I spoke to a colleague who invested with Linked. Out of 140 loans he's been involved in, 3 have defaulted. He's also got some nice incentives from some borrowers (Chocolate hamper from Skellig Chocolates, Beer from a few craft brewer). He says his average return has been 11% (excluding the freebies).


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## MrEarl (19 Mar 2016)

jim said:


> Hi MrEarl,
> 
> - What, if any, debt servicing calcuations are done ?
> Not sure I understand the question...FC provided a repayment schedule......



Hello Jim,

Many thanks for your responses.

The question about debt servicing refers to the Borrowers ability to repay the debt from free cashflow, which is not committed to other projects or loan repayments.

In very simple terms, pretend the available cashflow from the business is €50,000 and the existing commitments to current loans and capital projects is €25,000, then there is €25,000 available to servie the proposed loan.

The follow up concern is that after the P2P loan is obtained, that the Borrower might also go and borrow somewhere else, so the €25,000 we thought was available to repay the P2P loan suddenly comes under pressure because it now also has to be used to repay another new debt.


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## PaddyW (19 Mar 2016)

This is an area I would be interested in venturing into. Something to the tune of €10k. Is that too little, would you need more?


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## Lightning (20 Mar 2016)

10,000 EUR is very doable. A lot of P2P investments are for small amounts.


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## PaddyW (21 Mar 2016)

Thanks Ciaran, good to know


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## ant dee (21 Mar 2016)

Can anyone list here the sites available for Irish investors?


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## Lightning (21 Mar 2016)

Linked Finance. 
Grid Finance. 
Bondora (FCA regulated). 
Mintos. 
Twino. (Payday loans mainly). 
There are a dozen or so others. 

Do research before using any of the above platforms.


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