Here are some words that are thrown around in Peer-to-peer space. So you won’t feel lost, I explained them for you.
Auto invest – option setting on most P2P platfoms, where you specify what type of loans you want to invest in (interest rates, loan originators, loan term, etc.) and it will invest automatically. This means you don’t have to manually check the P2P platform every day and manually buy loans.
Bad debt – debt that won’t get repaid.
Buyback guarantee – it’s basically loan originator saying: “if no payments will be done by borrower for X days, we will buy that loan back from you. So you get your invested money back and we will deal with the borrower ourselves.”
Cash drag – your uninvested cash that sits on P2P platform.
Collateral – asset, that acts as a security for the loan. Think mortgage – if you buy the house and can’t payoff your loan to the bank, they will take your collateral, that is, your house.
Currency risk – if you invest in loans of different currency than what you invested. For example, if you use Euros, but loan is in Pesos or Dollars or any other currency. Depending on exchange rate, you may lose or gain your returns.
Grace period – time between a missed payment and loan being deemed as default. Longer grace period means worse returns forr you.
Loan originator – company that acts as a middle man between lenders (me and you) and borrowers.
Secondary market – option on P2P platform for investors to sell their invested loans to other investors.
Skin in the game – what percentage of loan amount is owned by loan originator. Higher percentage means more safe investment, because loan originator has to be more more certain in loan stability.
XIRR = formula to calculate your returns. Most P2P platforms show incorrect number, because they want to show it better than it really is. Check here to learn how to use it.
Heyo, my name is Valentin and I am a 29 year old investor from Slovenia. I started investing in ETFs and P2P lending recently, and decided to share my path with you. Because sharing is caring. 🙂
P2P portfolio: 4500 €0%
Emergency fund: 2000 €0%
Passive income: 31 €0%
(TBU on 1. 9. 2020)