Welcome to a slightly longer and more data centered post than usual. Recently we did some research in to the most common methods used to purchase current, overdue and defaulted loans on the secondary market and how many of these were bought at a discount, par or premium. This post is the first of a new monthly series and next month we will review how and why the stats have changed.
Take a look below at our findings and don’t forget to check out our top tip.
Current loans
| API | Manual | Portfolio Manager | Total | |
| Discount | €12,979 | €8,136 | €2,623 | €23,738 |
|---|---|---|---|---|
| Par | €71,569 | €87,405 | €401,131 | €560,105 |
| Premium | €37,757 | €129,694 | €0 | €167,451 |
| Total | €122,305 | €225,235 | €403,754 | €751,294 |
This is where the Portfolio Manager trumps the API and Manual options. You will see when reading the tables below that Portfolio Manager only buys loans that are current and are available at par value or at a discount. We can also see that the investors using the API are leading the way in buying current loans at a discount.
Overdue loans
| API | Manual | Portfolio Manager | Total | |
| Discount | €1,975 | €13,606 | €0 | €15,581 |
|---|---|---|---|---|
| Par | €1,111 | €3,967 | €0 | €5,078 |
| Premium | €699 | €2,394 | €0 | €3,093 |
| Total | €3,785 | €19,967 | €0 | €23,752 |
When looking at overdue loans, the manual selection option is most certainly in the lead. The table above shows nearly 8 times as many investments were completed manually compared to the API, suggesting that investors without the technical skills are still able to identify and select loans based on their own unique criteria.
Defaulted loans
| API | Manual | Portfolio Manager | Total | |
| Discount | €1,156 | €105,751 | €0 | €106,907 |
|---|---|---|---|---|
| Par | €0 | €15,609 | €0 | €15,609 |
| Premium | €0 | €164 | €0 | €164 |
| Total | €1,156 | €121,524 | €0 | €122,680 |
A unique strategy used by some investors is to purchase defaulted loans with a significant discount with the plan to reap the rewards once the collection and recovery process begins to generate a cash flow. Here, you can see over 87% of defaulted loan purchases were made at a discount and 98.9% of these transactions were manual.
Bringing it all together
| API | Manual | Portfolio Manager | Total | |
| Total Secondary Market Purchases |
€127,246 | €366,727 | €403,754 | €897,727 |
|---|
A top tip from us
P2P lending is a long term investment, meaning that you should take a view of investing your funds for at least a 5 year period. When selling your loans on the secondary market, it is highly likely that this will result in reduced returns or even worse, losses. Why? Because you are losing out on the monthly interest you would have received until maturity on each loan, not to mention if you sold a loan at a discount. To avoid this and to maximize your returns when liquidating your portfolio, why not pause your reinvestments and hold the loans until maturity, taking cash out as the loans are paid back to you on a monthly basis.
How quickly can I sell my loans?
The speed of the sales process depends on the market demand. In general, current loans are more liquid and will usually be sold within a day if sold at par value or a slight premium. Delinquent loans may take more time or the sale can be unsuccessful. As soon as another investor has purchased your loan, you will receive the funds directly to your Bondora account.
Good to know
Selling loans can result in a loss of the original principal, as the secondary market typically does not provide a high enough premium for current loans to compensate for the non-performing part of the portfolio. Therefore, we advise to proceed with caution and not to try and sell everything at once if you see a percentage of your portfolio in default. It is likely that you will quickly sell the performing part of your portfolio and be left with the loans in recovery, significantly damaging your expected return.
If you’re still unsure how to sell your loans, you should always get in touch on investor@bondora.com and have a chat with one of our experienced Investor Relations Associates who will walk you through it step by step.
