Personal loans offer an excellent risk-return profile, outperforming equities especially during recessions.
In fact it is a large asset-class with tens of billions of dollars worth of loans brokered monthly between borrowers and lender worldwide, yet this market remains mostly private.
Default of a borrower on a personal loan leads to persistent collection attempts and potential personal bankruptcy, wherein personal assets can be seized, bank accounts frozen, and employers ordered to salary-deduct.
Note the vast diversification over 25’000 borrowers for every €500k investment.
Note the very high interest rate 30% on average, which after losses and fees nets at about 12% return.
Credit card debt is most similar asset to personal loans, and in our opinion most of our personal loans offer higher expected returns for as good as, or better, credit quality, as comparable credit card debt.
Worst drawdown of US credit card debt was +4% net returns in 3Q-2009.