Is P2P lending worth it?

Based on statistics from Mintos P2P lending platform.

If you would browse the net for passive income ideas sooner or later you would read that P2P lending is a great source of passive income. Although it comes with notes that it is pretty risky as well. In this article I will share results of different investment simulations based on P2P statistics found on Mintos home page.

The stats from Mintos

  • Average annual return: 11,89%
  • Number of defaulted loans: 7,69%

Impressive.

Simulation – Mintos case

I ran 1 million simulated investments with a 7,69% chance that any of them will default but if they don’t go bust they give 11,89% annual return. And even though I reran the simulation couple of times (so more millions of simulated investments) I got same result:

  • Investors have the default rate of 7,7%
  • Investors annual return is -4,3% loss.

Simulation – bit worse than Mintos

For this simulation I assumed that return stays the same since most of P2P lenders offer 10% – 12% returns, but for default rates will be at the same amount.

  • 11,8% of investments default
  • Investments bring 13% loss

Simulation – Bondoras case

It is really difficult to get default rates from Bondora directly but I found some info here.

Based on that I set default rate to 24% and return rates to whooping 20,93%.

With these risky end stats we lose 32% annually but let’s check the safest option on Bondora: Risk of default 13,06% with returns averaging at 25,8%:

  • Annual return: – 3,56%

Conclusion

It looks like unless P2P platform provides risk free investment opportunities, they do not seem appealing except a case when loosing 4% per year is your most profitable option.

Additionally there is a credit risk of the P2P company itself. They are not around for a long time and we don’t know if they will live through next financial crisis.

After playing around with my simulator I found that we can get into profit if we manage to lower the default risk to 4%. But there are platforms that offer safe investment opportunities where the only risk You take is the risk of that platform going bust. One of such platforms is Twino.eu (can’t do simulation for it since they don’t publish default rates for loans in their platform) but there must be others as well.

Just wanted to add one final conclusion: The high number of recommendations to invest in P2P lending can mean only one thing – P2P lending companies have some good affiliate rates. You can check the affiliate program whenever somebody or some article suggests You should invest in P2P lending. 

Stay safe! 🙂