Statistics explained for marketplace for personal loans

Almost two years ago, an acquaintance asked me if I knew Good Credit. I answered in the negative, but found great interest in a marketplace for personal loans.

Of course, as a potential investor, one first wonders whether such an investment is lucrative

Of course, as a potential investor, one first wonders whether such an investment is lucrative

Unfortunately, no objective assessments were found anywhere that adequately addressed the complexity of these “single-payment, variable-insurance premium” annuities that can be terminated by the issuer. 

Good Credit is not a marketplace where you can actively trade. A “purchase decision” ties the lender’s money for several years. A premature sale is not possible. The only way for lenders to influence the market is to decide whether to invest in a project or not. Once that decision is made, you can only passively track your investments. As a lender who does not want to make money out of social considerations but wants to make a profit, you should therefore use all available reliable information for this important decision.

I would like to help you with Good Credit to quickly and efficiently select projects suitable for you from the projects on offer. Unlike other websites, the site is not designed to manage funded projects or measure the success of your investments or collect data. The main purpose is the comparison and analysis of currently offered projects. How this purpose will be fulfilled, I will explain below and thereby present the content of my website.

To make a profit in a market

To make a profit in a market

You have to buy something for less than it is worth. That sounds easy. On the other hand, identifying the ‘intrinsic value’ is not always that easy – especially not in the Good Credit market. Here you buy with money future payments. But how are they to be evaluated? Although they will get more money from the interest in the future than they invest today, on the other hand these future payments are worth less in turn today. But why should a future payment today have a different value? It is easier to understand that 100 euros are worth less in one year today, if you look at the reverse case: invest 100 euros at 5% interest today and get 105 euros in one year.

Likewise, today you only need to invest 95.24 euros to get 100 euros at 5% interest after one year. 100 euros in a year have now only a value of 95.24 euros, because you could invest the money yes to 5%. Similarly, any future payment today is worth less. How much less, that’s the interest you would get and the time to pay – in the above example, that would be 5% and one year. I refer to this interest, which influences the present value of the future payments, as market interest on my side. He can be freely changed by you. The default is the current yield, which reflects the interest rate level of the capital market.

 

Another very important aspect of evaluating a project is the uncertainty of future payments.

Another very important aspect of evaluating a project is the uncertainty of future payments.

This risk is taken into account by building expected values. For example, suppose you lend 100 people 100 euros for one year at 5% interest. However, they suspect that a debtor will not pay. Instead of 10,500 euros you expect only 10,395 euros. Similarly, the risk of insolvency of borrowers at Good Credit lowers the expected value of your repayments. Bank estimates how probable the insolvency of the borrowers is.

Unfortunately, it is only possible to determine with hindsight whether these estimates are actually correct – therefore they should be considered correct. Furthermore, one can assume that the demise of a borrower will also lead to a default. The probabilities for this are provided by the Federal Statistical Office in so-called mortality tables. Also this risk should not be disregarded.

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