Getting a loan to invest in loans? Results

More than 2 months ago I did a stupid experiment - took out a 3000 EUR loan to invest it in Mintos loans. The upside was very limited - at best case I could make maybe 50 EUR, but downside was much bigger. So how did it go? Worse than expected.

Initial plan

  1. Take a 3000 EUR loan on Feb 26th (interest free for first 2 months)

  2. Invest these 3000 EUR in a Mintos test account for almost 2 months

  3. Sell all Mintos loans in secondary market couple of days before April 26th

  4. Repay my own loan until April 26th

  5. Profit?

What went wrong?

As I mentioned in my previous post, there are many risks involved with this plan, one of them:

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

And this is exactly what happened - only 2 weeks later after I started this experiment, Covid-19 crisis started to have a huge impact on all P2P platforms - Loan Originators starting having problems and many investors wanted to get out.

Mintos actually did a survey about this topic, 2294 investors participated and here you can see the results:

How did it impact my plan?

Up till March 12th or so it was possible to sell Mintos loans to other investors with only 0.1% discount, but after that the situation with liquidity got bad very fast and to sell anything in Mintos secondary market, discounts of 5% to 15% were needed.

On top of that, Mintos also introduced a secondary market fee of 0.85%.

Sad Pablo Escobar Meme |  WAITING FOR OTHERS TO BUY MY LOANS | image tagged in memes,sad pablo escobar | made w/ Imgflip meme maker

So when I sold most of my loans on 23rd and 24th of April, these are the discounts I needed to use:

  • With discounts up to -3%, I managed to get €500

  • With discounts up to -7%, I managed to get €1528

  • With discounts up to -9%, I managed to get €2241€

  • With discounts up to -12%, I managed to sell everything

Final results

My test account on April 23rd, right before selling loans:

And how it looked like 1 day later, after selling all loans:

So instead of making €50 I lost about 3x more: €147.15

Key takeaways

  1. Do not borrow money for investing - it is a very dangerous and stupid idea

  2. Even if Covid-19 would not have happened, the time spent and risks taken for a very small reward would not make sense

  3. In an economic downturn even the biggest P2P platforms have liquidity issues

P.S. Join “High-risk investments“ Telegram group for an informal discussion.