Crowdlending

Crowdlending means that you invest in loans. And this is how it works. A person somewhere in the world needs a loan to something, it could be a car, unexpected expenses or whatever. They choose to take a loan at a company which is called a loan originator. This company, the loan originator, pays the loan to the customer and chooses to sell some of the loan through a loan aggregator, and this is where you can buy part of the loan and collect the interest.

Why would the loan orginators do this? Simply to be able to fund more loans and make more money. Isn't it risky? All investments come with a risk but as I wrote in the paragraph above, they only sell part of the loan, hence they do have interest in collecting the money from the customer. The part of the loan the companites need to keep is called skin in the game and consist of 10 % of the entire loan. Besides that you set up parameters in order to make it even more safe.

What makes crowdlending a good supplement to investments in assets is that it is not depending on the market, hence not volatile.

Once you have set up the parameters, you can sit back and enjoy what Einstein called the most powerful force in the universe: Compound interest. Compound interest means you get interest of your interest. Let me give you an example, you choose to use €1.000 for your crowdlending, and let us say you get an interest of 10 % a year. After one year you will have €1.100, which get reinvested, meaning that you after two years will have €1.210, in ten years your €1.000 will have turned into €2.395, in twenty years to €6.727 in thirty years to €17.449  and so it continues, and you do not have to do anything but waiting!

If you are interested in knowing more about Crowdlending, you can go through my guide to Mintos below. Mintos is the site I use myself.

Start right away by making a profile at Mintos here (you do not need to add funds to begin). It takes approximately 5 minutes and you can do by clicking on "Create account" when you click on this link (it will open in a new tab, so you can do it while you follow my guide). 

Once you have created an account you will need to deposit some funds. You do so by clicking on the two arrows in the top right corner and choose add money.

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Depending on your country of origin, you now have different ways to deposit funds. If you like me live in Denmark we can either do a  direct transfer through Trustly or a Bank transfer that takes a couple of days to go through.

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Once your funds have been added to your Mintos account it is time to get the money working for you. You do so by clicking on "invest" in the top menu.

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In order to get your money to work for you, you will need to add a strategy for which loans you would like to invest in. You do so by clicking on "Add strategy".

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Mintos have made some premade strategies. And if you feel good about any of them, you can use one of those. I haven't used it myself, as I prefer to make my own strategy. It is completely up to you what you prefer, however I will share the strategy I have chosen with you now. In order to make your own strategy, you click "Select" under "Custom".

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You will now have to choose between "Automated" and "Manual". You click on "Create Strategy" under "Automated".

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You now see a lot of Loan Originators. I'm very conservative when investing and I prefer to remove all that doesn't have a rating of 7 or higher. However, it is up to you to choose yourself. The lower the credit rating the higher the interest but remember it also comes with a higher risk

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The next thing I do is to make sure that I only invest in loans with Buyback Guarantee . The Buyback Guarantee means that if the payment of the loan gets delayed for more than 60 days, the loan originator will have to buy back the loan from you with interest. So in case you have buybacks you have an extra certainty and your investment is only in danger if the loan originator goes bankrupt or gets defaulted. Hence, the importance of the credit ratings.

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Once you have done so, you need to click on the little arrow to the right for each of the chosen Loan Originator and under  "Investment Structure" you have to remove "indirect", so you only mark "Direct". Meaning that you invest in the loan directly at the Loan Originator.

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Now you have to decide the interest rate and terms. Ideally you would like at least 10 % interest (However, you can set it at 9% in order to get your money to work for you faster). Regarding the terms, there are no advantage to choose longer terms, however you might not get all of your funds invested if you choose 12 months or less. In case you want out of the loan before the term ends, you can sell the loan on the secondary market in Mintos.This should be seen as long term investing though, so I have currently set mine on 24 months. Again, it is up to you what you prefer.

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Now you will need to fill in some general information about your portfolio. You have to give it a name, which is completely up to you. I have called mine "Core Strategy". It is my only strategy, so I just write a figure a little higher than my entire portfolio size, so I make sure the interest gets reinvested, lets say I have €900 in my Mintos account, so I set the portfolio size to €1.000. I prefer not to be too invested in each loan. So I have set the terms that each loan should be minimum €10 and maximum €50. However, if you do not mind to have more invested in one single loan, you can put it higher. Remember that the 3 questions to the right should all be answered "yes".

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Now you need to click on Diversification settings just under the 3 questions. Once we do that we have to choose how many percentages we would like to invest in each of the loan originatoes we chose. I usually put the same percentage for all and it doesn't matter if it gets a bit over 100 %, as it isn't all loan originatoes that have loans that meets the parameters in your strategy. In my case I chose to set it on max 8 % in each loan originator, however if you do not mind to have it higher, you can do that. If you have it higher, your funds might get invested faster.

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In the end you just need to click that you accept the terms of Assignment Agreements and click on save and activate. Once you have done so, you can sit back and relax. Your funds will be invested in loan originators within your parameters, once you do get your principal and interest back, they will automatically be reinvested. You can always change your strategy if you want, and it might also be a good idea to increase the number in portfolio once in a while.