Funnily enough, the drama of interest rates dropping has happened many many times. For example with Twino this was an issue multiple times – they dropped interest rates and investors walked, then they increased the rates again but didn’t increase it to previous levels, so after a bit of turbulence, the rates ended up being slightly lower, the business was happy that the price of money supply was lower and the investors felt like their complaints were listened to (were they?)
With Mintos, we’re currently going through the interest drop turbulence again (second if not third time? maybe even fourth?). Once again though there is a big amount of investors who are surprised at *how* on earth the interest rates can be dropped, and threatening to walk.
Of course some investors will walk (if they have better options to invest), a very large amount will however be willing to invest at lower rates (as you can see from current statistics that is the case with Mintos).
The answer to the question of how the rates can be dropped is easy – supply and demand – there is a lot of money and not that many loans, meaning even lower rate loans get picked up.
This means that even if the money supply dries up a bit and originators increase the interest rates a bit, then they’ll likely never be as high as they used to be before.
Those who have been investing with Mintos for a while remember that at the start it was easy to have *only* 14% loans in your portfolio, the move to 12% loans has been gradual, and 11% loans have been tested for a while now (in mogo’s case).
Currently the primary market is at about 10-11% (and secondary market is cleared of 12%+ loans) and while the loans are moving slowly, then they are moving – the mogo buybacks have left investors with a lot of cash and the refer-a-friend campaign combined with the activate-automatic-strategy cashback campaign seem to be helping the cash flow.
So as is, investors have three options:
- Transfer money out and invest somewhere else (where?)
- Yield and invest the money into lower rate loans (to prevent cash drag)
- Wait and hope the interest rates bounce back (which they definitely might)
I’m currently a mix of 2-3. I am reinvesting some of the money, mostly picking up discount loans on the secondary market, and some 11,5-12% loans if I seem them on the primary market. I have been lucky though and not had that many mogo loans bought back so far, so I might have enough money locked in until the interest rates bounce back (I might have just jinxed myself and be hit with the next round of buybacks).
All in all – not much new, interest rates get tested all the time in P2P investing, been a while since it has happened on Mintos though but this is something that’s been talked about a long time – there is a serious push for interest rates to be lower (money supply from investors, longer histories for originators), and every now and then something like this is to be expected.