Bondora P2P Lending Review – A Real Investor Experience (Updated April 2019)

By | 9th April 2019

Summary: Bondora have been around a long time, and they have a managed to maintain loan volumes albeit overtaken by others such as Twino and Mintos, which does indicate some lender support. Returns here are the most volatile out of the loan types, with investors reaping both higher interest rates and full exposure to defaults. Without quite complex hands-on monitoring I would think the most likely outcome would be to lose money, so this is a platform only for advanced users. They have tried to combat this by offering a separate ‘Go and Grow’ account, but the returns here are not competitive.

Here is how Bondora compares to other European platforms I have invested in:

PlatformLinkTarget Rate (%)My XIRR (%)Current (%)Live Rating
ReviewVariableTBC-9.1%4/5
ReviewVariableTBC3.0%2/5
ReviewVariable-12.56%0.0%1/5

What is Bondora?

Founded in 2007, Bondora are perhaps the oldest European peer-to-peer lender, opening up their loanbooks to the crowd as early as 2012. Perhaps the nature of the loans fully suited the limited amount of funding in the market at this time: Bondora offered loans mainly to high-risk customers, the type of customer that may not get a loan from a mainstream bank. These tended to be for lower amounts of money, and at very high rates of interest.

Even in this day the warnings were implicit that many of these loans would default, and Bondora provided a wealth of information about the borrowers that many other platforms don’t to this day, such as age, monthly income/outgoings and loan purpose. This combined with an a loan rating allowed investors to target lenders as they so wished. For those who had less time, Bondora could purchase loans automatically on your behalf in a combination adjusted for risk tolerance.

Loans tend to be unsecured, so late payments and defaults are regular, the theory being that the good loans would outnumber the bad loans and overall a positive return would occur. However, in recent years they have been overtaken by platforms such as Mintos and Twino which have expanded into European territories faster, backed by a provision fund model which has proven to be more palatable to lenders – capping the returns at the benefit of smoother volatility.

Here is a table showing Bondora’s features:

Established2012
Advertised ReturnsVariable
Investment TypePersonal Loans
Loan SecurityNone
Minimum Investment5 EUR
Cash DragNone
Secondary Market?Yes
FeesNone
Provision Fund?No
Auto Invest?Yes
Available in ISA?No
FCA Authorised?No
Active on forum?No
Sign-up offers?None

Operating Model

Registering with Bondora is really easy:  you can sign up in the regular way, or even log in with your Google or Facebook account. Verification will still be needed in the regular way to process withdrawals.

In time the product has evolved, and picking your loans individually is not the norm. The default account setting sees you in the Portfolio manager, which only gives you a couple of choices, how much you want to invest, and the tolerance of risk:

There are 10 different settings, and the system will give you a predicted income for each (the greater risk, the greater volatility). After you select a setting Bondora will acquire loans with a risk distribution to match your appetite.

If you want more control, you can activate ‘Portfolio Pro’. This allows you to filter loan offerings by a number of characteristics such as interest rate, country, risk rating, loan size, and specific filters about the borrower, more akin to the ‘old Bondora’. Because no loans are purchased automatically, this method does require a lot of work.

A third option is relatively new, and is simply called Go and Grow. Here, you simply assign money to Bondora and they give you a return (currently 6.75%). This money is more akin to a bond than any type of lending, and hence has no exposure to individual loan defaults (although is vulnerable to platform default).

There is also a secondary market which allows you to sell loans. This market is fully flexible, and allows a varied level of discounting. Advanced users may find this of interest, as quite often loans in distress are sold extremely cheaply here, with the bet on returns being whether Bondora can recover anything or not.

Interest is paid monthly, and most loans are amortising. This means a steady trickle of interest into the Bondora account.

Pros of Bondora

There are some things to like about Bondora:

High Interest Rates: Returns on the high risk loans are commensurate with risk: loan rates of 70% are not uncommon.
Good level of information: Using the Pro product gives a wide range of information about borrowers, allowing investors to make a considered decision on who to lend to.
Adaptable for most: There are three different types of product now on Bondora, which covers most users needs.
Long history: Bondora has a long history and has recently turned profitable, so platform risk should be smaller.
Secondary market: The ability to price loans at a discount gives better flexibility and allows an exit at a cost.

Cons of Bondora

Unfortunately, the cons are numerous as well:

Weak Recoveries: Many loans are made to people with poor credit, and recoveries here are very inefficient. It is often quite inefficient to chase a small loan and as a result it seems that many recovery efforts do not amount to much more than a few phone calls and letters, most of which go unanswered.
Questionable statistics: Many of the projections made by Bondora assume a good level of recovery, for example when giving a price for the portfolio.
No provision fund: There is no provision fund at all for loans, which obviously compared unfavourably to competitors.
Blackbox product not competitive: The Go and Grow product only pays 6.75%, which doesn’t seem a huge premium on other platforms offering the same product.
Hands-on: Perhaps the most efficient way to use Bondora is to set up your own filters and monitor them, but this requires a lot of work.

My Bondora Investment Strategy

I don’t have one anymore as I am not invested. I found many of the pre-set portfolios not worth it. Many of the loans default and many give nothing in recoveries, with only very small amounts being recovered after a period of time. My own belief is that anyone holding on to the higher risk loans to maturity will suffer loss, and I do suspect that interests are not aligned with the platform, as they have already taken their fee.

I do believe though that there will be people successful on the platform, as it may be common sense that the risk of default of a loan is lowest early on in its life. Those who can take the time to set up filters to attract the most likely good loans as well as monitor their own portfolios to trade in and out of them could possibly earn massive returns, because of the high interest loan rates. I also wouldn’t expect them to share their strategy openly on a forum, but evidently some people have done very well out of Bondora.

CONCLUSION

Bondora was one of the few ways to access European high-interest loans when it was first launched, but since then others have overtaken it with better products which offer more reliable earnings. With its blackbox product offering poor value I see no reason to invest here unless you have some time to play around with the Portfolio Pro model and actively trade loans.

Disclaimer: This article represents my own opinions and should not be substituted for investment advice. Please research before you invest with any firm. Typically P2P investments are not covered by the Financial Services Compensation Scheme (FSCS) in the way bank deposits are, and there are no guarantees that you will receive the returns advertised (or even a return at all).

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