The year 2018 is characterized by the fact that we are investigating several different alternative investments. Within the category peer-to-peer lending (P2P) there are several different players and we have now evaluated Good Finance.
Good Finance is a Finnish company and is the Nordic region’s largest player in P2P lending. The company was founded in 2013 and has entered the Swedish market in 2018 after receiving approval from the Financial Supervisory Authority.
To be transparent, I have started a collaboration with Good Finance. If you choose to become a customer and invest money with Good Finance using my sponsored links, I will receive a small compensation. I only have collaborations with companies that I like and use myself. My hope is that as a reader, it will give you insight into new ways to invest your money.
The concept of peer-to-peer lending
In short, peer-to-peer lending means that you as a private individual lend money to other private individuals. In practical terms, however, this does not mean that you have to meet and sign contracts, etc., but this is managed through a platform. The platform in this case is called Good Finance. Because the platforms that handle P2P loans have low costs, they are more cost effective than classic banks. The efficiency means that both those who lend get a good return and those who lend the money get good loan terms. A win-win situation that benefits us investors as well as those in need of borrowing money.
When you deposit money into your Good Finance account, you will find the people who need a loan, while also doing a solid credit check on those who want to borrow the money. To minimize the risks, your invested capital is spread on many different loans. The risk of only lending to one person is that the borrower is unable to repay your money.
P2P loans have been around for a little over 10 years and are relatively large abroad where the UK and the US are the largest markets. However, in recent years it has grown significantly in Sweden and now there are several different players where Good Finance is one of them.
This summer we chose to invest USD 11,000 with Good Finance to evaluate the platform. Overall, I am very pleased with how it worked and I was going to go through a bit of what it looks like, what returns you can expect, benefits, disadvantages, and risks with P2P loans.
The appearance of the platform
Below is a clip on what the home page looks like when you log in. There is a lot of information available that you can see. The points I usually look at most are returns, interest received, deposits and reservation for credit loss. In addition to the clippings below, there are also several nice graphs that visualize the return and how my money is distributed on different loans eg.
There is an algorithm behind how they calculate the returns, but so far it has not really matched my calculations. But I have been informed that this is because I have relatively little capital invested, ie quite a few loans and then various transactions, credit loss reservations etc. have a big impact on the figure. It varies a bit from time to time when I log in. Therefore, so far I have taken my received interest and divided it with what I put in. Right now it will be about 4% in 4 months. So my annual return is 12%, based on the fact that I do not receive any of what is reserved as a credit loss. Just because money is reserved for credit loss does not mean that money is lost. This may be because it is a day’s delay from the borrower paying his interest to it being received by Good Finance eg. So the return could be higher.
I would like to say that Good Finance’s offer to us as an investor is very broad and flexible. Firstly, Good Finance does not only have P2P lending between private individuals. You can also invest in corporate loans and factoring. Secondly, you can choose to invest in different countries. Today it is possible in Finland, Sweden, Poland and Germany.
When you start your account, you will choose for yourself what you want to invest in and where you want to invest. You can also set your risk tolerance. So you limit yourself to certain credit classes (each person and company gets a score between 1-5 after the credit test) which allows you to control your risk and return in that way. For this reason, it is difficult to say exactly what return you can expect, it depends a little on how you choose to allocate your investment. But based on statistics from the Good Finance website, the average return for investors has been above 10% per annum as shown below.
The return that I showed from my summary picture is based on only P2P lending and I have chosen to have the distribution 50% in Finland, 25% in Sweden and 25% in Poland. I have also chosen to invest in all credit classes. Below is an overview of our allocation.