Investing into high interest Bondora loans

Since people want to take out high interest loans, then of course someone has to offer them. Bondora’s new rating system means that HR credit rating clients will have their interest rates at anything from 50-90%, due to the increased risk levels associated with the group.

As some of you may know, I have a small running experiment, where I occasionally take in super high interest loans to track how they’re doing and whether the theoretically higher interest level (which will theoretically pay out 3x principal payment) actually compensates for the losses.

By now the first loans given out under the new system are old enough to start seeing some defaults, so a quick look into how my high interest loans (>50%) have actually done. As you can guess it’s not a pretty picture.

highinterestloans

I have a bit more then 20 high interest loans, less than ten of those are old enough to start drawing any sorts of conclusions from them. The first nine are 5-8 months old, which is a point where many defaults have already happened (a lot of loans default right at the start).

As you can see, out of the 9 loans old enough to look at, 4 have defaulted, 3 are delayed (one will default in a matter of days) and only two are actually paying, but out of those two one has had the payments rescheduled. Not a particularly rosy picture.

However, by this point the 9 loans have already paid enough interest and penalties to balance out one of the defaults in case no recovery ever happened, so you can clearly see the ridiculous interest at work here. Provided the two green loans “hold our” for a while more and keep paying, the investment will be well on track to zero-sum before recovery, which might not seem to be the case when you look at how depressing the overall picture is.

Overall, I’d say that the results so far are as expected, a high default rate is unavoidable with such high interest rates and HR risk group, so I wouldn’t recommend testing this out of you’re trying for a conservative portfolio. For those chasing higher turns in the long run and hoping for recovery, it might work out quite well in the end. This is the part of my portfolio that I track for fun, so it only makes up ~2% of my overall portfolio value.

6 thoughts on “Investing into high interest Bondora loans

  1. Mul on uue HR ratingu järgi 5 sellist käsitsi valitud laenu ja tulemus on enamvähem sama. 3 laenu on võlas, 1 viisises ja 1 tagastatud.

    1. Have those that are paying had time to default? I left out the ones younger than 4 months because it takes talent to default that quickly.

  2. Ok. Those are from Ferbruary to May. Propably it will go worse :) There are few more loans fully paid back. Will get better picture at the end of the year!

  3. Yeys you are right. I can backup your conclusions with current average market rates of HR bonds on the secondary market which are just ridiculous 42-68%. And we are in rising trend for more than year and half.

    Holders of these highrisk notes just want to get rid of them…

    See more secondary market statistics at http://bondpicking.com

    We’ll see if Bondora loan quality will come back in future… Fingers crossed, as its in the interest of the platform too (if they want to get on board hedge funds, and they do :))..

  4. The defaut rates for their Spanish and Slovakian loans have been very high, so I have been avoiding those areas since that became apparent, which means time consuming manual investment because the auto bid system no longer allows choice of country. I do not sell overdue loans on the secondary market, so my returns on the platform will be completely dependent on the eventual recovery of the defaulted loans, which will only become apparent after a few years.

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