Peer to peer loans are when you borrow or lend to other people (sometimes business loans are included). This is often done via an intermediary service in the form of a digital platform. At present, there are several such intermediary services, both Swedish and foreign, which attract attractive interest on invested capital.
The principle is quite simple as an investor
If you have savings capital to avoid then you can start an account with any player and start lending it. You earn interest on the loaned capital. Interest income is normally taxed at 30%. In some cases you may also pay various fees for using the service.
With some, you can choose exactly who you want to legend to. Some offer the possibility of this being handled completely automatically. Some have “auctions” where the person offering the lowest interest rate can give the loan. Some have more fixed interest rates. It is not uncommon for the opportunity to earn between 3-15% in interest income on loaned capital, which when compared with savings accounts can be considered very attractive.
Yes there is very good to say and very nice has been said as the industry has grown at a good pace in recent years. Now to the risks I see with investing in peer to peer loans, one should always consider the risks in a financial investment.
The lender is responsible for the entire risk
No deposit guarantee applies to the money borrowed. It is given the opportunity to choose a risk profile on the loans themselves, but I strongly suspect that in good times everything will roll on regardless of the risk profile. In bad, the crashes do not come on any single random loan but then they will roll in several at a time.
You lock money
Sure, you can be attracted by the possibility of a higher return, but when payments are made either occasionally or at the end of the loan period, you do not have the opportunity to sell / get money such as you, for example. have with shares or ordinary savings. One way to lock in shorter time is to invest in short loans.
The tax is high
30% in these times when you hardly pay anything for ISK accounts is quite a lot. This means that you get a decent interest rate on your investments to make it worth the risk.
The return versus risk is not always as attractive
In practice as one might be led to believe. Although you can count about 7% over time in interest income on peer to peer loans from many Swedish players, it is the same rate of return that ordinary share savings provide over time. However, the difference is that when you want, you can get equity savings in cash by selling, undoing purchases or investing more in one and the same share if it feels comfortable to do so. Shares are more liquid than peer two per loan. Now, add that price movements are a risk. Then my risk comparison halts when peer to per loan does not have price movements, but for us others who believe that loss of capital is risk (bankruptcy, payment default), not price movements in themselves, then peer to peer loans appear to people who seek loans as a greater risk-taking than shares in established companies.
The seriousness and ability of the mediation service itself needs to be assessed
As well as having to try to assess companies to buy shares in, you need to assess the brokerage service. After all, it is through their glasses that you should decide how to lend your money and it is through them any recovery processes take place (or a third party that they choose). It is difficult to assess many of the brokerage services other than through their own website. In other words, are there rarely stores, products or services out in the “community” to go after and create their own opinion about. Nevertheless, public limited companies are rather tightly controlled over what information they must provide periodically, which simplifies transparency outward.