Why I’m avoiding Short Term Loans?

Why I'm reducing my consumer P2P lending on Mintos Robocash and Viventor @ Savings4Freedom

Over the past few months, I have been reducing my P2P lending investments on Mintos, Viventor, and Robocash. Some of you contacted me to learn the reason behind my decision to act in this manner, especially when recently I added Mintos among the P2P lending platforms I would select if I started my crowdinvesting portfolio all over again.

The best way to provide a clear answer is to share with you my reflections on the topic.

Investment Rationale: BuyBack Guarantee, Maturity & Type of Loans

One of the elements that I value when investing in P2P lending opportunities is the additional sense of security provided by the buyback guarantee associated with my investments on Mintos, Viventor, and Robocash.

The second element that I considered when evaluating Mintos, Viventor, and Robocash was the opportunity to loan my savings for a very short maturity term: 30 days to 3 months. This allowed me to plan my investments considering the repayment dates to prepare my next decisions.

The last element is the type of loan available, based on the two previous conditions being met on Mintos, Viventor, and Robocash. Typically, when we decide to follow this investment strategy, we are lending our savings to finance microloans, invoice financing loans, personal consumer loans, or short term loans. Typically 30-day deals.

Problems I faced with short term loans?

Now, I just need to explain the investment results that trigger my action:

  • Are the loans being paid on time?
  • When the buyback guarantee is triggered?
  • Does the penalization interest fee pay for the opportunity cost of not investing my savings on loans with longer maturity?
  • Are interest rates aligned with the opportunity cost?

Prior Disclaimer!

Before I start, I want to remind everyone that no information contained in this publication constitutes tax, legal, insurance or investment advice. I just want to share the reasons why I’m reducing my P2P lending investments on Mintos, Viventor, and Robocash.

Are short term loans being paid on time?

The short answer is NO, in their large majority.

After more than one year of investments following this strategy, I realized that the number of short term loans that paid on the exact repayment day was quite small. This means I would be entitled to a penalization fee. Knowing this made me feel comfortable, especially knowing that the buyback guarantee would be activated in case of non-payment for more than 90 days.

So, I just described to you one of the problems: lack of payment on time for most of the short-term loans.

What this means for you as an investor, is that instead of having your money back when you are supposed to, you need to wait. While you wait, you are financing the operations of the loan originator for an additional period that could go up to 90 days. My understanding of this is that the loan originator is making money with interest while you wait because they are investing their money on other loans, while you wait for yours to be paid back.

This reflection trigger my next question.

When the buyback guarantee is triggered?

The answer depends on the P2P platform policies and loan originator.

Typically we have a 60 to 90 days period to kick off the buyback guarantee. If we don’t think hard on the topic, this is quite a “feeling good” security proposition for our investment. But in reality, considering my reflection above, answering the first question, you realize that waiting for the buyback guarantee is an opportunity cost you are not considering when calculating your returns.

So, if I invest for 30 days, but just get my money back after 90… my actual returns from that particular investment drop to 1/3 of the real opportunity of having my money paid and invested sequentially.

What this means for you as an investor, is that in an ideal scenario, you would be able to get more than 3 times the interest on your investment if you got your principal plus interest on time to reinvest the full earned amount for 2 additional cycles, instead of waiting for the buyback guaranteed to happen.

But most of the time there is a penalization fee for non-payment, right? This triggers my next question.

Does the penalization fee compensate for the opportunity cost?

The quick answer is NO.

The math is quite simple and comparing the ideal scenario of investing one month, getting you money plus principal on time to do it again and again for a period totaling 90 days, you would make much more when compared with the existing penalty fees for lack of timely payment.

So, I truly have an opportunity cost of having my money locked on short-term loans that will require repayment through buyback guarantee.

What this means for you as an investor, is that penalization fees don’t pay you your opportunity cost. For a single loan, this amount is neglectable, but considering your entire investment career these small amounts can become a truly surprising figure.

Now, let’s close the loop with the final question.

Based on my reflections, are interest rates for short-term loans aligned with the opportunity cost?

The quick answer is NO.

The accumulated opportunity costs across multiple non-performing loans with buyback guarantee show, by the end, a significant impact on the overall P2P lending portfolio performance, especially when you consider business loans with higher maturity dates, but also higher interest rates, and full buyback guarantee as well.

So, I have a much better return investing my money into business loans with a higher maturity date, interest rate, and buyback guarantee, than using auto-invest on short-term loans that require buyback regularly.

What this means for you as an investor, is that you need to align your investment strategy to avoid truly become a loan originator “piggy bank”, leveraging their short-term loans with your opportunity cost.

And now? What to do?

I have been looking for alternatives to invest the funds I withdraw from Mintos, Viventor, and Robocash.

Mostly, the alternatives are recent enterprise and real estate loan P2P lending platforms, that provide high-interest rates and buyback guarantee or compensation funds.

I have reinvested my funds in the following P2P lending platforms:

PlatformLoan TypeAverage Annual Interest RateBonus & Cashback
Monethera @ Savings4Freedom
Enterprise & Real Estate~18%In case you employ my referral link to invest in Monethera you earn 5€ in cash bonus and 0.5% on all investments over the first 90 days in cashback

SPECIAL CASHBACK BONUS: in case you use the promo code: savings4freedom0919, you will get cashback for 180 days instead of 90 days. This is a limited offer! Only the first 25 accounts to add this promo code enjoy this cashback bonus.
Envestio @ Savings4Freedom
Enterprise & Real Estate~16%In case you employ my referral link to invest in Envestio you earn 5€ in cash bonus and 0.5% on all investments over the first 270 days in cashback
Enterprise & Real Estate~19%In case you employ my referral link to invest in Kuetzal you earn 5€ in cash bonus and 0.5% on all investments over the first 180 days in cashback
Crowdestate Logo @ Savings4Freedom
Enterprise & Real Estate~15%In case you employ my referral link to invest in Crowdestor you earn 0.5% on all investments over the first 180 days in cashback
Wisefund Logo @ Savings4Freedom
Enterprise & Real Estate~19%In case you employ my referral link to invest in Wisefund you earn 0.5% on all investments over the first 270 days in cashback

Strategy for my Next Steps

Over time, I will decrease my P2P investments on short-term loans available on Mintos, Viventor, and Robocash and invest more in business loans in P2P platforms such as the ones presented on the table above.

This allows me to avoid the problems identified in my reflections over this subject and makes much easier for me to increase the returns every month from my P2P lending portfolio through passive returns.

I suggest that this approach should be followed until a goal amount is reached for each P2P lending platform for diversification reasons.

Conclusions & What do you think?

Now you know the reasons behind my decision to reduce investments on short-term loans. In my opinion, the right allocation of investments should have this reflection in mind to respect the goal of maximizing returns while following my investment principles.

I hope you find value on this reflection and consider this post as good information to support your own decisions! What do you think? Do you feel the same on your short-term investments? I welcome your feedback and loved to learn what you would do differently!

Do you want to Invest?

Check among the P2P crowdlending opportunities available on Savings4Freedom, always taking into consideration that all information is entirely based on my personal experience.

Investe @ Savings4Freedom

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