One of my financial goals for this year is to deal with investing in P2P loans and, if necessary, to invest myself. The last step to gaining information was Lars’ book “Investing in P2P loans: What you should know, how to avoid mistakes and successfully invested *” to read. To my surprise, I recently found a copy in my mailbox as a gift from Lars Thanks again at this point!
So much in advance: The book combines everything worth knowing (as far as I can judge) about P2P loans and leaves no questions unanswered for beginners like me. I would therefore call it standard reading in this niche. Since the topic is quite new to me, the whole book was a single lesson for me. Here are my top 5 for you.
You have been lending your money all the time!
You have been lending your money to other people all the time. You do not do? You do! As soon as you give your money to a bank, it will be lent out. Anyone. You do not choose this borrower, but the bank chooses him and gives him “your” money. In return, the bank receives interest from the borrower and passes some of it on to you (unfortunately very little in the current low interest rate phase). How does that work in detail?
“The borrowers are greedy for consumption and cannot handle money!”
A persistent rumor, writes Lars, is that only people who borrow from their bank due to their poor credit rating can borrow money from credit marketplaces. If that were the case, however, the whole P2P system would not work. Because then the investors would never get their borrowed money back and would make such an investment highly unattractive. Rather, the self-employed are very difficult to get a loan from a bank, for example. For them, P2P loans are a real alternative to get liquid funds in the short term.
In fact, the operators of the credit marketplaces are of course aware of investors’ fear of total default and take numerous preventive security measures. Borrowers must undergo a credit check on each platform, for example using credit record or Data-Arm Infoscore. Due to extensive credit checks, loans are divided into different classes (eg A to D). The riskier a loan, the higher the return. Every investor is free to decide which return class to invest in. In this way, those loans with a high risk can be avoided. With the Mintos platform, it is even the case that loans have a buyback guarantee. In the event that a borrower does not pay, you will definitely get your capital back.
Manual vs. automatically
You can set these systems according to your preferences and criteria (some more, make them less detailed) and your money will be automatically invested for you.
In general, I’m more likely to do it for myself, but Lars was able to convince me of the advantages of a system-controlled investment:
- Effort: I want to make passive money with P2P loans. Keeping an eye out for adequate credit for hours and hours is pretty much the opposite of passivity. You would have to deduct the time you spend on research, buying, etc. from your return in a fair manner. Don’t forget: time is our greatest asset!
- Take what is left: It is probably the case that new loans go to the investment systems first. Only when all automatic investors have been taken care of will the loans land on the free market for everyone else. This is of course a disadvantage.
Oh dear, oh dear. Here it comes. A huge drop of bitterness. Profits from P2P transactions are considered interest income and (like other capital investments) are taxed with the flat rate flat tax of 25 percent, if applicable, solidarity surcharge and church tax. So far so good. But: Losses from P2P transactions cannot be claimed as such and cannot be deducted from tax. With regard to interest rates, this still appears to be quite logical: if a borrower does not pay his interest, this unpaid service cannot be recognized as a loss. Unfortunately, the same also applies to repayment.If a borrower is unable to repay the loan, so you cannot get the money you lent back, you will remain on the loss and cannot even deduct it from your tax.
As indicated at the beginning, the book helped me a lot with an overview of the P2P market in general, but also to know and understand important details. I particularly liked the ideas of the individual platforms and the easy-to-understand language. The book is very entertaining and quick to read. You get through wonderfully in one day. I now feel well informed and prepared for my first P2P investments!