You work hard. You earn money. You put some of it in the Bank.
It’s a new year and you receive your annual bank statement. You open the statement and you roll your eyes (or get angry). Yes – welcome to the world of abysmal bank interest rates. We are all familiar with the above situation – there’s not much we can do about the bank interest rates. However, this is not the only way in which we can earn/invest money.
Rewind to almost four years ago and my daughter had just been born. I have always said that, should I become a father, I will open a Savings bank account for my children immediately and start saving some money for them until they reach the age of 18. I did my homework and found a local bank that had a pretty good (considering the situation) interest rate for a Child Savings Account which would keep the money until my daughter turns 18 years old. I went for it and proudly deposited my first amount into my daughter’s bank account.
Two weeks pass and we receive an advance notice letter that the Bank is revising down the interest rate on the Child Savings Account and we’re back to square one – putting money aside and not earning anything for it.
It was then that I decided to look at alternative savings opportunities and I came across peer-to-peer lending. At the time, I had opened an account with FerratumP2P (now inactive) and Bondora. At the time, FerratumP2P had an 80% buyback guarantee should the loan not be repaid within a specific timeframe (60 days past due date) while Bondora had no buyback option.
I had zero experience, zero knowledge and zero understanding of the P2P model and this was very evident as I picked the wrong investment categories (F in Bondora) and, to this date, these low-grade investments are still not paid back (and declared as defaulted by Bondora in most cases).
Since then, the P2P lending market has exploded with a significant number of P2P lending platforms opening in Lithuania, Latvia and Estonia. Most of these platforms now offer a BuyBack Guarantee (originator buys back the loan) or Payment Guarantee (platform will repay the money on time even if the originator has not yet repaid).
I decided to give it another go and I am now part of the following platforms:
I had also subscribed to other p2p platforms in the past (e.g. Swaper, Robocash) but have since decided to stop using them.
What makes P2P lending so interesting?
It offers an alternative to earning negligible interest in a Bank Savings Account. If you choose wisely, most of these providers offer BuyBack Guarantee so you know that you are covered should the loan default.
Like any other investment, there is always an element of risk and, to be clear, you are not protected against the P2P provider going bust (or, in the case of Mintos, if the loan originator goes bust).
Interest rates are significantly higher when compared to Banks and, for example, I choose to invest only in loans that are as close to (or higher than) 10% across all of the above platforms. If you use Automatic Investing (as most platforms offer this), earned interest and paid back principal is re-invested – fully utilising the benefits of Compound Interest.
How do I go about it?
You can click on the links listed above and apply for an investor account. These websites will then ask you to provide basic personal information and, in order to verify your identity, you will need to provide copies of identification documents and/or proof of address. You will also need to deposit funds from a bank account.
In the coming days weeks, I will be posting more articles about Passive Income including a monthly report on my portfolio (and comparing it to previous months) as well as reviews of their respective configuration.