Last month, Mintos introduced a new filter, direct investment structure and indirect investment structure. This is very important in case the loan originator goes bankrupt.
The tool tip on the filter ‘Investment Structure’ reads:
“The direct structure is when you are buying a claim against the borrower. The indirect structure means you are buying a claim from the loan originator. Therefore, the repayment is backed by the borrower’s repayment”
What we know thus far is, that the buyback guarantee on Mintos only is honored is the loan originator doesn’t go bankrupt. There are buyback guaranteed loans for both the direct and indirect investment structures. But what happens if the loan originator goes bankrupt?
Let’s get this straight. So the direct investment structure means that you’re buying a claim against the borrower. This means that if the loan originator goes bankrupt, you still have a claim against the borrower to get your money back. But if you have made 10 EUR investments in every loan, this can become quite a hassle. You may have to go after every single borrower that is defaulting, going to court over 10 EUR. However, chances of recovering money is still higher than with the indirect investment structure, read further below.
Whereas with the indirect investment structure, you’re buying a claim against the loan originator. If the loan originator goes bankrupt, then they can’t honor a buyback guarantee obviously, and then you have to put a claim against the loan originator if the loan defaults, not the borrower. If you have 50 defaulting notes with the same bankrupt loan originator, there is basically a 50-50% chance you will get your money back. That is, if they don’t decide to give only a part of your money back, because after all they are in dept and already have no money left. Get the gist?
However, do beware of the buyback campaigns Mintos has started with in December 2017. Now in January 2018, we’ve seen loan originator specific buyback campaigns, which should worry you, specially when there is the indirect investment structure involved.
However, as usual, when investing do make sure to investigate each loan originator carefully, as your buyback guarantee does need to be honored by the loan originator. It is hard to say if the statistics are accurate for the defaulting loans on Mintos as loan originators have the right to buy back loans early, they could technically hide defaulting loans because it will look to us like they have been paid off.
This means basically that differences will start to show when the loan originator goes bankrupt. Which one is best is hard to tell. Both situations have advantages and disadvantages.