To understand and learn more about any investment, it’s paramount that you get acquainted with the terminology. Just as every niche, P2P lending has its own terms that you need to know.
This article gives you a brief explanation of each important term, so that you always have a P2P lending glossary at hand. Be sure to refer to it whenever needed!
What is P2P lending?
In a nutshell, P2P lending allows you to invest into high-interest consumer as well as business loans. These are made available on platforms such as Lendermarket, by the loan originator.
Investing into P2P loans is possible by investing at little as 10 euro. With two digit interest rates of 10 percent and up, the loan originators on Lendermarket also offer a Buyback Guarantee – you’ll find the term explained below.
If you want to know more about Lendermarket, make sure to check out our in-depth guide on “What is P2P lending?”.
P2P lending glossary
We’ve divided the terms in three sections for a better overview and have explained the terms in a way that’s applicable to how Lendermarket operates.
- General definitions
- Investing & returns definitions
- Loan-specific definitions
The following includes general definitions for understanding P2P terminology.
Average Annual Return. The total average annualised return indicates an investment’s average compounded returns (or loss) over a 12-month period. It represents the percentage rise or decrease in the investment’s value throughout that time on an annual basis.
Borrower. The person or business taking out the loan from the loan originator.
Buyback Guarantee. If a loan goes into the “Overdue” phase on Lendermarket, it will be bought back after 60 days and everything will be paid back to you, including accrued interest. This is an automatic process, and if you set up Auto Invest it will continue investing the funds into new loans. Please see our blog post on Buyback Guarantees for more information.
Cashback Campaign. A cashback campaign is an event where you get additional reward for investing a specific amount into P2P loans.
Compound Interest. Compound interest is the interest that accumulates over time, where the interest is not only paid on the principal but also on the interest received on the interest. This results in exponential growth.
Due Diligence. Due diligence is the practice of auditing and reviewing the facts laid out by the loan originators, to make sure everything is safe and sound. For an indepth look at Lendermarket’s various stages of due diligence please see our blog post. An aftermarket where P2P investors can sell their already-invested-in loans, often for less than face value.
Group Guarantee. On top of the standard guarantee, there may also be a Group Guarantee. In some cases, loan originators are not a single entity, but also have parent companies with bigger financial resources. This means that if the loan originator itself can not fulfil the guarantee and pay back all outstanding loans, the parent company steps in to cover any obligations. This adds a layer of security, provided the parent company has the necessary means.
Liquidity. Liquidity describes how much easily accessible capital is available, this can be cash or cash-like equivalents such as government bonds.
Loan Originator. The loan originator is a company that issues loans to businesses or consumers. They provide the loans to be invested in on a platform such as Lendermarket, an example being Creditstar, Credory, Quickcheck and Crediface.
Loan. The sum of money that the borrower has been issued by the loan originator, which is now available to be invested in on the platform.
Net Annualised Return. Net annualised return (NAR) measures the actual rate of return of all your investments since you started on Lendermarket. It includes anything that affects your returns, such as delays, defaults, and campaign rewards.
P2P Platform. The platform which allows the loan originator to offer their loans to investors to acquire capital. It’s also the place where investors can find P2P loans to invest in.
Skin in the Game. Skin in the game refers to how much a loan originator (LO) keeps of their issued loans in their own portfolio. Skin in the game of 10% means that only 90% of issued loans are available for investment on the P2P platform, the other 10% stay in the portfolio of the LO.
Investing & returns definitions
The following terms highlight some more investment-specific terminology.
Auto Invest. Auto Invest is a feature on Lendermarket that allows you to define certain investment parameters and let a computer take over the work of picking out the loans to be invested in.
Delayed Interest. The bonus interest that is owed to you because a loan is delayed and therefore incurs higher interest rates.
Deposit. The amount with which your account was funded.
Fixed income investment. An investment where the outcome is foreseeable, as the returns are predetermined, i.e. 100 EUR at 10%, where the interest is distributed monthly.
Investment. An option to let your money work for you with the hopes of it becoming more.
Principal Interest. This is the interest you earned on the money you invested into a loan or multiple loans.
Re-Investing. Re-investing describes the option to let the returns of your investment be invested again and accumulate, instead of it being distributed into your account and just stay there.
Withdrawal. The option to withdraw your money from your Lendermarket account to your bank account.
Last but not least here are some terms of this P2P lending glossary that specifically apply to loans.
Loan Type. The loan type describes what kind of loan type a loan is (consumer loan, real estate loan, business loan etc.). On Lendermarket, you can invest into the following loan types: 1) Consumers loans; 2) Real estate loans; 3) Business loans.
Loan Interest Rate. This value describes how much interest rate you will receive annually if you invest into this loan.
Remaining Term. The remaining term indicates how many days are left until the loan has to be fully paid back by the borrower. The value is given in days.
Loan Status. This shows which status a loan currently has, there are three different statuses on Lendermarket.
- Current. Everything is going as planned and the rates for the loan are paid back as agreed on by the borrower and loan originator.
- Overdue. The borrower is late on the payment. This status is applied if the borrower is up to 60 days late with the payment.
- Defaulted. The borrower has been late on the payment for more than 60 days and the loan originator buys back the loan.
There are a variety of different terms that are used in the P2P industry and on Lendermarket, and now you know them all!
We hope that this glossary aids in your understanding of P2P lending as a whole and will be a help when making your next investment decisions.