My Problems With Dutch Peer to Peer Lending Platforms

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My investment strategy is 100% based around investments in the stock market, and I am actively looking to diversify into real estate too. As an experiment, I have invested in two crowdlending projects, but I don’t really like this type of investing. Today I’ll discuss my problems with Dutch peer to peer lending platforms.

What is Peer to Peer Lending

A short introduction to this type of investing seems useful. Basically, there are two ways in which you can invest. You either invest in equity or in debt.

Investing in Equity

Investing in equity means that you get to own an asset that is generating income. Stocks are the most common form of equity investing, by investing in stocks you buy a piece of a company and therefore own a part of their future profits. Buying real estate is also a form of investing in equity, if you own a building and rent it out, the profits are yours to keep.

Investing in Debt

Investing in debt works slightly different, as you don’t get to own the underlying company or building. You are simply supplying the capital to another party that is trying to buy a company or building, or that wants to use your money to grow. You don’t participate in future profits, but you’ll be paid an interest rate.

Examples of investments in debt are bonds and personal loans. You can also invest in debt via peer to peer lending platforms.

Read more: why I don’t invest in bonds.

Debt Investment through Peer to Peer Lending

Peer to peer lending is trying to make it easier to invest in debt, by leveraging the internet and the fact that online platforms can be used to connect lenders and borrowers. An example is a company that needs to buy a machine worth 10,000 euros and needs to borrow half of that.

They could go to a bank to get a 5k loan, but the bank might turn them down. With crowdlending or peer to peer lending, they can borrow this money from lots of individual lenders via an online platform.

My Experiment with Dutch Peer to Peer Lending Platforms

One of my blogger friends and co-host of the Goed met Geld Podcast, SVMV, is investing a lot in crowdlending projects. He’s loaning money to literally hundreds of projects, through various Dutch Peer to Peer lending platforms.

Although my investment strategy is way different, as I invest in stocks, I was curious about how this new crowdlending thing works. So I went ahead and invested in two peer to peer lending projects. In total, I invest 750 euros to try out the concept.

Project 1 – Mortgage, 5 Years, 5.3% Interest

The first 250 euros are a loan to a real estate investor who crowdsourced one of his mortgages. He’s paying me 5.3% per year for 5 years. The loan is amortised over 30 years, so during the first 5 years, I’m getting paid almost no principal.

However, every month I’m getting my interest payments based on the open loan amount. The project just turned two years old, so in three years from now, I’ll receive my full balance back.

Project 2 – Business Loan, 4 Years, 8% Interest

The second project I’ve invested in has a duration of four years and is also slightly over two years old now. I’ve loaned 500 euros to this company, and they’re paying me an 8% interest rate.

Crowdlending investment overview
Crowdlending investment overview – 25 months to go!

Why I Don’t Like Dutch Crowdlending Platforms

Both projects are current, meaning they have paid their principal and interest payments on time. Given that the mortgage has a 70-80% LTV I feel pretty confident this money will be paid back after 5 years without any problems.

The business loan also seems to be going great. Most projects fail in their second year, and they just made it through. Hopefully from here on they’ll just keep paying it off and returning me my money.

However, I will not reinvest any distributions I’m receiving from these platforms. The reason is I simply don’t like investing with this strategy. I can see how it can be very profitable, but it’s not for me.

My investment strategy is based around flexibility and liquidity. Because I invest in highly liquid ETFs, if I need the money I can simply sell my investments the first day the markets are open, and then withdraw the money to my bank account. Unfortunately, this is not possible with my crowdlending projects.

Worst case scenario, I have to wait two or three business days to liquidate my portfolio, for instance when I need to put a down payment on a real estate investment.

European Alternatives to Dutch Crowdlending?

Since I think that peer to peer loans could have their place in a well-diversified investment portfolio, I have been looking for alternatives to Dutch crowdlending platforms.

In discussions with other investors, I’ve found that there are quite some European peer to peer lending sites where you can invest in crowdlending. Since regulations are in place in the European Union, I feel comfortable trying out these platforms.

The main reason to do this is that I want to invest in peer to peer lending without the liquidity problems I’m currently experiencing on the Dutch crowdlending platforms. I need to be able to generate cash quickly, by having loans with short durations, or by being able to sell the loans on a secondary market.

Short Term Crowdlending

I’ve created accounts on two sites; Mintos and Grupeer. On both platforms, I added 500 euros to try the possibilities and see if this is something I can use in my portfolio.

The reason I’m trying out these sites is that I can invest in loans with way shorter durations. Currently, I’m targeting loans that are between one and six months, and even considering looking at a maximum of three or four months instead of six.

With these short-term loans, my liquidity will go up; I won’t have to wait for years before all loans will be paid back.

Also, on Mintos there is a secondary market to which you can sell loans if you need the money. Grupeer is planning to add a secondary market, but I’m not quite sure when they will implement this.

Next Step: Reviews

On this blog, it is my job to share my experience with you guys. Once I have made my first investments through these sites I will definitely write review articles to see if these alternatives are any better than the Dutch crowdlending platforms I’m investing in currently.

I’m curious, are you investing in peer to peer lending? What platforms do you use and what are your experiences? Let me know in the comments below!

2 thoughts on “My Problems With Dutch Peer to Peer Lending Platforms”

  1. I was also interested in peer to peer lending, but after researching it throroughly I decided not to go with it. They are basically junk bonds (high yield), only then very illiquid unlike high yield ETFs or funds. Only a small portion of the loans offered are attractive, and with the next economic downturn I expect a lot of them to default before the term ends. Somehow most loans still get fulfilled, which shows to me that people only see the return and not the risk…

    • I think it’s unfair to call these loans junk bonds. For some companies it really makes sense to pay higher interest rates. Maybe they can’t get financing otherwise, or they have more flexibility in this way.
      The problem I have with these longer term loans is the illiquid nature of the investment. That’s what I’m trying to solve by investing in Mintos and Grupeer, in short term loans.
      Just like you, I’m curious to what the future will bring, especially when the economy starts turning south.