3½ years of Bondora: Inching towards breakeven

Bondora is quite unpopular. People don't really understand the platform. People want quick wins, buyback guarantees and the like. That's not Bondora.

Instead, Bondora is a long ride. It's illiquid and difficult to forecast. Show me another blogger that has four years worth of data from Bondora and has actually properly analyzed what is happening. There are none.

I don't blame them really. How can you recommend a platform you don't understand.

A negative 'net interest received' doesn't mean you're losing money

I've seen some very much read bloggers plug the "net interest received" into an IRR calculation and that's just dumb. The net interest received calculated so: Interest received - Principal missed. Therefore, if you miss more principal in the time frame than you get interest, it can go negative. That doesn't mean that principal is in default, or that you've lost something. It's just not on time.

So the chart shows that I'm missing principal. The next interesting question is of course, what's happening to it?

Well, what's happening to it is it's being delayed. Re-negotiated. The vast majority of my loans (=70%) are in Finland and it's not possible to do a personal default. Instead, your debts will follow you forever, assuming the debtor knows what to do. And I'm certain they do at Bondora.

When you start missing your payments, your debt goes to court and get handed over to a local bailiff. When this happens, the interest turns to 7% and you normally get to re-negotiate the loan duration. On Bondora, I see this a lot: loan principal is not being paid off, but interest is. This isn't a problem for me, as for as long as the interest is coming in, I know they're alive and the interest is 7%. It's not great, but it could be worse, too.

Cashflow from recoveries is picking up

The normal lifecycle for a consumer loan portfolio like the one on Bondora is that the good loans are paid back quickly and after that, you're stuck with the bad for a while. That's just how it goes. Don't expect many to happily pay 30% interest rates.

This is normal. That's how people in this segment work. It's not the best-off who take a loan from Bondora. Some of them will pay it back like agreed, but many of them can't or never even thought they would. The bailiff process haunts them until they've paid back.

Platforms such as Mintos (and others that have a buyback guarantee) will protect you from any of this debt collection / bailiff stuff. But at the same time, they'll expose you to loan originator risk. That's the tradeoff you need to decide on. Bondora isn't as profitable as Mintos when things go well, but if you happen to be over-exposed to a loan originator that goes bust, you might lose much more. Do your homework.

So far only 6.9% of my loan face value has defaulted, which is lower than I'd expect.

Breakeven here I come

The principal and interest payments cover for about 70% of the invested principal. However, 70% of principal is still unpaid. much of this is the slow principal that's being paid back through bailiff process.

I believe it's going to take another 2 years to reach breakeven. By then, 50% of the principal will be paid back and the rest is pure profit. That's going to be nice.

On the left, % of principal that's paid back, split by vintages. It's nice to see them behave so similarly.

On the right % to breakeven (so not just principal, but also including interest). About 30% to go.

The above chart is created with my free investment return rate calculator Google Sheet. Internal return rate is about 10% now and looks like it will now settle somewhere around there. The new cashflow from recoveries might re-vitalize it a bit, or it will inch lower towards the 7%. We'll see.

Some of the Bondora's own calculations are quite useless IMO. While it does calculate my Net return correctly, if I click on the "Use only your portfolio history" for the Yield to maturity estimate, it'll give me 0.2%. If I use overall Bondora portfolio it'll give me 0.9%. That's not in any way realistic and would mean a pretty catastrophic default scenario for the remaining loan principal.

It's not spectacular, but it's not bad either

The reason I like Bondora is that I learn a lot about the whole consumer lending market. Platforms that offer buyback guarantees make it very difficult to understand how the underlying industry is actually doing. Being the loan originator yourself makes it much easier to look at what's happening.

Of course, if you only rely on Bondora's statistics, you're not that much wiser. Some of their reports are just not very good. In the beginning, they'll look like you're the best investor on the platform and after a while, it can look like everything's down the gutter. Neither of these extremes are accurate.

Even after 2 years since I've stopped investing in new loans, I'm in the top 16% of investors on the platform. It looks inevitable though that next time I'm going to do an update on this, I'll be in the next column and just 'above average' 😊.

Bondora is a very long-term investment. My P2P portfolio is still quite large and I'm not looking to add more on Bondora, but I'll keep it in the mix for its special character: no buyback guarantees and I get to be the loan originator myself without the middle men.

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