Bondora review (April 2020) - why Bondora shouldn't have a buyback guarantee

Bondora is a P2P lending platform from Estonia that works in a very straight forward way.

Bondora background

Bondora is a p2p consumer lending platform from Estonia, founded in 2008 by Martin Rask, Mihkel Tasa and Partel Tomberg. Bondora's early stages is linked  to Estateguru through Julian J Kaljuvee, one of the founders of Estateguru and a founding investor on Bondora.

Bondora is one of the largest peer lending platforms in Europe with over 100,000 investors already, closing in on 400M€ invested. While a size smaller than Mintos, it is in the same ballpark. It's a BIG operation.

How to get started on Bondora

Getting started is easy. You:
  1. Sign up at and set up your account
  2. Transfer money
  3. Set up your investing strategy
You have three different investing options:
  • Portfolio manager is the basic loan allocator
  • Portfolio pro gives you more control of what loans to invest in
  • Go & Grow is a fully liquid 'fund' that gives you a fixed return
Once everything is set up, it's very hands-off: your strategy is automated and works in the background, hopefully making you richer every day - some strategies with much more risk than others.

Investing alternatives on Bondora

Portfolio manager - the basic approach

Portfolio manager
Portfolio manager is basically a slider that gives you a guess of your returns, with a given staring principal, monthly deposit and an investment horizon. As Bondora classifies the loans with a rating from A to F and lastly HR, the slider affects the allocation to the different risk classes.

Portfolio pro - science it out yourself

Portfolio pro
You can have as many Portfolio pro -configurations as you like. You get to choose specific filters for the country, risk rating, loan duration and interest. With pro, the interests go as high as 275% - that is to the investor. Imagine what the interest must be for the borrower!

Go & Grow - a steady, most predictable interest

The Go & Grow is very different from the previous two alternatives. With Go & Grow you get complete liquidity and can move money in and out of your account as you wish (1€ withdrawal fee). Bondora pays interest up to 6.75% on your invested capital. Bondora will use the money invested in Go & Grow to buy loans from their own marketplace. The Go & Grow instrument makes it easier to invest, have no liquidity problem BUT it caps your income.

Bondora's portfolios are iliquid and difficult to forecast

So Go & Grow aside, the Portfolio manager and the Portfolio pro are quite illiquid: loans are typically many years in length. There is a secondary marketplace, but it's not as active as with for example Mintos. In case you want to get rid of loans that are late, you need to give some decent discounts. It's possible, but difficult. You can transform your loans to Go & Grow, but if there are late loans, you will again give a discount on the principal.

Unless you've been with Bondora for a couple of years, it is fairly difficult to forecast your returns. Bondora does not have a buyback guarantee, which on one hand is rewarded by much higher interests but on the other means you need to carry a lot more risk yourself.

Let's say you invest 20,000 € with a typical risk portfolio, how do you know what share of your loans will default? What happens after the default (debt collection)? The loan durations can be years, but debt collection can add some to that, too. So how do you forecast your future cash flow? 🤔

"Not very well", is the answer. To forecast your long-term internal rate of returns, you need to have your interest rates, have a guess of the proportion of principal that will get delayed, understand your recovery efficiency and the interest from the recovery period. These vary by country. Depending on the loan durations you've chosen to invest in, this could take years.

With Bondora, you're in it for long term with high risk, unless you use Go & Grow. With Go & Grow you're very liquid with much less risk. Performance of your portfolio will come down to two factors, that are out of your hands:
  1. Bondora's risk rating algorithm being accurate in predicting a borrower's capability to pay back the loan
  2. Bondora's recovery process being efficient in recovering defaulted loans
You can of course choose the risk ratings to invest in. Being Finnish, I have a decent trust to the Finnish and Estonian recovery process. It takes a long time, but it should get done, assuming Bondora doesn't drop the ball. So be conscious of this aspect.

Bondora interest rates

The interest rates with Bondora do go up to 275%, which of course is insane. But, it does allow for very different strategies. Other platforms simply don't give you this, which is why Bondora is an interesting animal to have in my P2P portfolio.

Naturally, high interest rates go hand-in-hand with high default rates. There's not a great deal of money to be made in a 275% interest loan if the borrower has no intentions of paying it back. Usually a court order doesn't do much good, since the borrower doesn't own anything, either. So, do your research.

With my own research, I've concluded that F-rated loans have performed best considering the interest and defaults, so my own portfolio has a lot of those. Naturally, a big chunk of my portfolio is overdue, but the high interest rates should cover for it. We'll see.

Lacking buyback guarantees, Bondora has a lower platform risk

This is an unpopular opinion: It's good Bondora doesn't have a buyback guarantee. It shouldn't.

P2P industry is going to have a wake-up call one day. Platforms providing 12% interests with buyback guarantees aren't less risky; they're simply managing risk differently. Buyback guarantees are there to attract more investors. Someone still has to deal with defaulted loans.

Usually the way it works is that the borrower pays a much higher interest (than 12% for example), the platform pools the risk and calculates they can with decent confidence give a steady 12% for the investor and then they level the profits and losses in between. This is all great, until something changes the market dynamics for the worse. When that happens, the platforms that don't have enough cash to weather the storm, or are legally boxed to their commitments to investors will hit a liquidity crisis, which in the worst case takes down the entire platform.

Not having a buyback guarantee completely removes this problem from Bondora. Even with Go & Grow, Bondora has been wise to set it up so that they promise an interest "up to 6.75%", but they don't give big promises such as that there's no chance you'll lose your capital. Wise.

My Bondora portfolio could yield 18% interest - maybe

My Bondora portfolio hit a bit over 30,000€ in April 2019. Since then, I've started to work on balancing my P2P portfolio a bit, not having 30,000€ in one platform, but instead even it out to spread my risk.

So far my Bondora internal return rate is over 24%. With a 30,000 € portfolio I got 661 € interest in April of 2019. This sounds very good, however, it doesn't yet take into consideration the eventual loss of defaulted loans.

I have a very high-risk portfolio and therefore need to be realistic about what share of my loans will get delayed or defaulted. Bondora provides a decent tool for forecasting this with your own assumptions. 

With these assumptions, my eventual return rate should be about 18% - before taxes, but since I'm accustomed to compare my returns in gross, I've set my income tax to zero.

You should take my calculations with a grain of salt. The internet has direr reviews on Bondora. As said before, performance will greatly be impacted by Bondora's risk rating algorithm and especially their recovery process efficiency. These do change over time, so someone who started investing many years ago, might have a different overall experience than me.

An average portfolio on Bondora according to their own statistics is at the time of writing 10.3%. I've recently written about my 2½ year experience with Bondora and it looks like a more realistic long-term return is around 14%. That wouldn't be too bad at all! Actually, have a look at this compound interest calculator and check how that would develop over time:

Bondora is an interesting diversification alternative

For the long-term investor, Bondora provides a refreshingly different investing experience. On one hand you are forced to understand the consumer loan business dynamics at a much granular level. Through Bondora's statistics, you get a much better picture to how the loan business actually works as it hasn't been hidden behind a buyback guarantee mechanism. Lacking this mechanism, Bondora also isn't exposed to the same platform risk as most other platforms.

On the other hand, you are given no guarantees on how well the risk rating works, or how well Bondora's recovery process will work. These will eventually dictate what your interest will be. I have no reason to believe that Bondora would do a worse job at this, compared to its rivals - it just exposes is to investors.

So, for these reasons, and since the portfolio with Bondora has had a great track record so far, I'm giving Bondora four stars ⭐⭐⭐⭐. It's not the platform for anyone, but it is an interesting piece I plan to keep in my portfolio. I've learned the most about P2P industry through Bondora and I feel there's still much to be learned. I would never recommend to put all of your P2P portfolio in one place and the same applies to Bondora. It is a high-risk platform and as an investor you pretty much carry all of the risk yourself. But that has forced me to learn to understand the dynamics, which has made me a better investor. And I'm still very confident Bondora will be very profitable for me.

If you would like to add Bondora to your porftolio, or even just give it a go, use this link to register, and it'll give you free 5€ on your account, even before depositing any money of your own.

These might be interesting follow-up reads and diversification options for Bondora:

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