4. How is it possible for investors to receive an average annual return of 10% when loans are granted at an interest rate starting from 12.9% per year?

This is possible through diversification. An investor finances various borrowers, who receive loans at an interest rate ranging from 12.9% to over 30% annually, depending on their rating. As a result, the average interest rate across the entire loan portfolio would be around 20%. After deducting the 2.5% service fee and accounting for compromised loans, the investor can achieve an annual return of 10% or more.

More details?

Each investor can fund one or multiple portions of loans, within the established limits. Non-sophisticated investors can allocate between 25 EUR and 200 EUR for consumer loans and between 25 EUR and 500 EUR for business loans. Sophisticated investors can invest between 25 EUR and 2500 EUR per loan request, regardless of loan type.

The purpose of investment limits per loan is to reduce excessive risk exposure to a single borrower. Diversification is crucial for protecting an investor’s capital, as each loan carries a risk of non-repayment. By investing smaller amounts in multiple loans, investors spread their risk and maximize earning potential.

How does borrower rating impact interest rates?

The interest rate varies based on the borrower’s rating:

Loans granted to borrowers with an A rating have an interest rate of approximately 6.5% per year, reflecting low risk.
Loans for borrowers with an E rating can have an interest rate of up to 25.5% per year, indicating higher risk.

Each investor has the freedom to select the loans they want to finance, depending on risk appetite:

Low-risk loans (A or B rating) offer stability but come with lower interest rates.
Higher-risk loans (C, D, E, F, or G rating) can generate higher returns, but carry a greater probability of default.

An investor’s investment portfolio represents all funded loans. The portfolio’s average interest rate is calculated as a weighted average of the interest rates of all loans. To manage non-repayment risk, it is recommended to fund loans across multiple risk categories.

For example, a diversified portfolio may generate a gross average interest rate of approximately 20% per year. After applying the 2.5% service fee and factoring in default rates for each loan category, an investor can achieve an average net annual return of 10% or more.

For a realistic calculation, investors should adjust their portfolio’s interest rate, considering the default rate associated with each borrower category. Diversification remains the key to a successful portfolio.