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.

My Bondora portfolio (2015, June)

Though I’m currently enjoying a lovely 34 degrees and sunshine in Valencia, then not all is sunshine and rainbows in my Bondora portfolio. Firstly, the influx of defaulted loans is steady and secondly, since I’ve slowly reduced money invested monthly as well, then actual numbers of interest earned have also dropped.

investmentsjune

As you can see, this month ended with red + yellow loans actually totalling over 25% of current portfolio value. One of the reasons for this is that I’m now seeing the influx of defaults from the second half of last year when I added in increasing amounts of funds. This will likely look even sadder in the next few months when I reduce the money invested further. Not that I’m looking forward to the moment when 20% of the pie will be defaulted loans but that is not completely out of the realm of potential options.

Interest earned

interesttotal

As stated, there was an actually almost 3 euro drop in interest earned, mostly due to more loans defaulting. The final total for the month of June ended up just below 100€ (99,16€), which is a bit sad since I hoped that I was over the 100€ hump for good. I’m hoping July will perform better, but so far there hasn’t been a particular influx of payments like there is at times in summer. Also, the recovery of defaulted loans wasn’t particularly great this month either, the total recovered was barely over 5€.

newdefaults

Compared to May I actually ended up with so many new defaults it was a bit surprising, 15 more stage 1 loans was a bit more than expected in comparison to the recovery. It’s still a very long time horizon plan to see anything from recovery but it’s clear how this is demotivating to see – the default rate of loans in my portfolio is getting quite high despite the fact that I’ve heavily steered towards lower risk grade loans in the past few months.

investmentstotal

Looking at the overall investments, as stated, I’ve reduced the amount I invest in Bondora per month to about 100-120€ or so, depending on how much free funds I have. This slows me down in terms of my goal for Bondora portfolio size for the year 2015, but across all social lending platforms I’m on track for 10 000€ principal value, since while Moneyzen is doing slow, then I’ve added Estateguru into my portfolio as well. Time will tell how the second half of the year will play out.