Recently, I have here an article on "Crowd Investing in real estatepublished". And (latest) while I have noticed that I have absolutely no idea about the subject.
But because I was not so alone am sure with this non-existent experience, there I am particularly pleased that I can publish a "Introduction to P2P Loans" in the form of a guest contribution today.
Author of the guest fee is now Claus Lehmann . Claus Lehmann publishes the blogs since 2007P2P-Kredite.com and P2P-Banking.com . So we can rely on the wide experience of a proven expert!
But enough of the preface. Let us see what Claus Lehmann has to tell us about P2P loans:
Introduction to P2P Loans
Investment products of banks such as call money or fixed deposits are being interest only very low. However, if you want a loan from his bank, pay, depending on the credit rating significantly higher rate of interest and if there is an overdraft facility, even interest rates of over 10% are common.
The bank acts as an intermediary between investors and borrowers and that power can be paid, among other things by the spread between the two rates. But they bear the credit risk of default if the borrower the loan can not repay (or want).
For several years, P2P lending market places offer a more efficient, leaner way to bring together investors and credit seekers on the Internet. P2P lending stands for peer-to-peer (quoted from one directly to the other). The loan seekers thus places a credit application on the marketplace, the marketplace verified identity, creditworthiness and generally more details of the credit seekers (such as income). Here, the requests are screened usually already 80-90%. The remaining suitable credit applications are then filled by investors.
Mostly through the loans of between one and five years. These are annuity, that is, the borrower pays every month the same high rate, which is composed of principal and interest back.
The marketplace platform serves up that the entire process. That is, it rates the borrower draws each month and distributes the payments to the participating investors. the borrower does not pay, then she forces the borrower and taking care of the collection.
advantages
Since the settlement process is very standardized, and the P2P lending marketplaces are very specialized, fall in comparison with banks lower costs (eg entertain the marketplaces, unlike many banks no branches). Of course, the marketplace will make some and take fees from the borrowers and, if the investors. Usually, interest rates, investors are in the market places get, and the interest rates charged borrowers taking into account the fees, but closer together, ie the range of the marketplace is less than that with a bank.
Incidentally, it is in Germany for regulatory reasons not entirely without a bank. therefore, each P2P German credit marketplace cooperates with a bank transaction, for example, formal concluded the credit agreement with the borrower.
For investors there is an advantage that he can choose very dedicated, in which loans with which maturities and interest they want to invest.
note
- In P2P loans, the investor bears the risk (not the marketplace or the Bank). The risk is also dependent on the creditworthiness of the borrower. With the expected return investors therefore need to consider the effect of loan losses and not just look at the nominal interest rate.
- Highly recommended is the strongest possible diversification. So an investor should not invest the total amount invested in one or a few loans, but cut into pieces in a lot of small credit units as possible. On most marketplaces can already invested from 25 euros per share credit.
- Remember that the capital has long tied. While borrowers can repay usually on P2P lending marketplaces the loan without prepayment penalty at any time, an early termination for investors is not possible. Most foreign credit P2P marketplaces offer a so-called secondary market, their credit shares sell to the investor to other investors (ie act) can.Currently, however, no German P2P lending market has such a secondary market.
- It is advisable to slowly enter and first to invest smaller amounts of money to get a feel for how the marketplace works
risks
The main risk that the credit losses actually be higher than previously forecast by the market place. Because then the yield will be smaller than originally expected or may even be negative.Possible causes include insufficient assessment of the borrower or wrong assessment (scoring) the risk as well as economic changes by the market square in front of lending (such as deterioration of the economic situation).
Another important risk is the possibility that the marketplace ceases to operate (eg bankruptcy).While on the claims of investors against the borrower exist in this case, but it could ambiguities or problems in the operational management of processes occur. Most marketplaces have taken precautions for this case and concluded agreements with a third party who will then step in.
The development
Worldwide P2P lending marketplaces grow strongly. Especially in the US and UK growth rates of about 100% per year are now common. The oldest P2P lending marketplace Zopa (founded in 2005) has recently announced that they have given in the period from 2005 to now 1 billion pounds in loans. The second billion Zopa will have conveyed to the 2016th So what previously took 10 years, will now only take about 1 year.
The development in England is favored by several factors: created The government promotes marketplaces through tax breaks for investors, there is a high competition from dozens of platforms and multiple marketplaces offer by so-called commission-funds a certain protection for investors against the risk of default.
In contrast, the development in Germany is back around 2-3 years. But many investors are convinced of the model. Forum on P2P Kredite.com investors discuss their experiences and strategies. Often it is observed that an investor initially used only a marketplace for testing purposes, but quite invested over time in several different market places and so not only achieves diversification across credit shares but also across multiple marketplaces.