Getting a loan to invest in loans?

Today I read about an interesting, but at the same time very dangerous and stupid idea - taking out a loan with a very low interest rate and investing it in a P2P platform to get profit:

You can read more details in the P2P Millionaire blog post and I completely agree - that this kind of approach can cause big damage and I strongly recommend for anyone reading this - DO NOT REPEAT IT!

But at the same time, there are even more stupid things that I have done before:

  • Investing in a stock with no idea, what the company is doing (in 2009)

  • Trading leveraged 3X Oil ETFs: UWTI, DWTI

  • Trading Bitcoin with 5X leverage

  • Following “value investors” and investing in “value“ stocks that go to 0

  • Gambling with options

  • Shorting Tesla

And lot of stupid stuff that is being done by others:

  • Trading Forex

  • Participating in MLM/pyramid schemes

  • Buying crypto shitcoins (anything that is not Bitcoin)

  • Trusting Jørgen’s tips about where to invest

So remember - whatever you do: it is your money, your responsibility and it will be you, who will deal with all the consequences. If you like to gamble and lose money, read below about one stupid way to do it. If not, close this post and forget about it.

Getting a loan

While P2P Millionaire talked about getting a loan with 3% interest, for my own experiment I went a step further in the “stupid“ direction and selected a 3000 EUR credit line with 42% interest (51.98% APR).

Why? Because I am not very smart in calculating risks and as a new customer I get to use this credit line for 2 months with 0% interest:

So I have 2 months of “free“ money and if I return the 3000 EUR loan by 26th of April, I won't have to pay any interest. And that is exactly what I plan to do.

But if it fails and I use the credit line for a year, then I will have to pay 725.42 EUR in fees. So I am risking about 725 EUR in fees + a 3000 EUR loan to make a maximum possible profit of about 50 EUR. Not a very good idea, right?

What can go wrong?

  • I forget about this loan

  • I do a stupid “investment“, lose the money and cannot pay it back

  • I do a stupid “investment“, for some reason money gets frozen:

    • My account can get locked (AML, bug or whatever reason)

    • Liquidity can disappear (problems with Loan Originators or a global downturn)

    • Mintos decides to shut down/pause secondary market for a while

  • I decide to spend the money and don't want or cannot pay it back

Anyway - lot of stuff can happen, and if I don't pay the loan back within 2 months, I will pay for it at least 4-5x higher interest rate than it is possible to earn from investing in a P2P platform.

Investing my 3000 EUR loan

I selected Mintos because it has the most liquid secondary market from all the P2P platforms I've tested so far. Of course, there are many risks when investing in Mintos or any other P2P platform (and I will write about them in another post), but at this point - let’s assume that I understand the risks and still want to go ahead:

I don't like Invest & Access and I don't want to spend much time on this, so the only option in this case - using Auto Invest. I wanted to select only the best Loan Originators that platform has, but at the same time - diversify at least among 20 of them, so that I don't have more than 5% in one Loan Originator. So I set up 1 Auto Invest portfolio with following conditions:

  1. Selected only those loans that come with BuyBack guarantee

  2. Selected all Loan Originators with A, A-, B+, B ratings

  3. Removed GetBucks and Peachy (too low rating on ExploreP2P)

  4. Added Dziesiątka Finanse, Dozarplati, Esto, LF Tech (high rating on ExploreP2P)

  5. Selected loans that have at least 9% interest rate

  6. Verified that at least 20 Loan Originators matched my settings (in my case: 26)

  7. Did not care about loan term (will have to sell all of the loans anyway)

  8. Set Portfolio size to 3050 EUR (so it keeps investing the money that comes back)

  9. Set max 5% share for each Loan Originator in the Diversification settings

  10. Set investment size in One Loan from 10 EUR to 100 EUR

And that is it. Now I can only pray that nothing will go wrong.

You can see the investment process and the resulting portfolio below:

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