Today I want to write the list of the terms you can find in the crowdfunding world and explain them. I think that this article can be useful for all those who are new to P2P lending or Real Estate crowdfunding.
Terminologies you need to know
LTV (Loan To Value) – LTV is a financial term used to express the ratio between the value of the loan and the value of the asset purchased.
Collateral Value – Collateral Value is the value of the asset offered by the borrower as a guarantee for the requested loan.
Payment Schedule – This is just a list/table in which you can find the next payments that will be credited on your personal balance.
Term – This term indicates how many days or months the loan lasts.
Period left – This term indicates how many days or months are missing at the end of the loan.
Schedule Type (Bullet, Full Bullet) – I found this term only on EstateGuru at the moment. Bullet repayment schedule means that loan interest is being paid periodically and principal amount is being paid at the end of the loan period. Full bullet schedule indicates that both interest and principal are being paid at the end of the loan period.
Mortgage Rank – We can have first ranking mortgage and second ranking mortgage. In the first case, the lender has the first right to proceeds from the forced sale of the property. In the second case, the lender must first wait the correct repayment of the first-ranking lender.
Loan Type – This ther indicates the type of the loan. It could be a business loan, a mortgage loan, a development project and so on.
Property Type – This term defines the type of property related to the loan.
NAR (Net Annual Return) – The NAR is the annualised measure of the rate of return of the actual investments made in loans, after actual write-offs and service charges.
Loan originator – The loan originator is the entity (bank, insurance…) that is connecting the borrower to the lender.
Auto-Invest function – Auto Invest is a feature that allows the investor to invest his funds automatically in all loans available for investing on the platform. You can find this function on Grupeer, EstateGuru, FastInvest and so on.
BuyBack Guarantee – This is the most important protection for investors. If a platform provide the BuyBack Guarantee protection means that if a loan goes into default, we do not lose our money but the platform will buy back our loan (in some cases also the interests). You can find this function on Grupeer and FastInvest, for example.
Secondary Market – This feature allows the investor to re-sell his loans to other investors. The Secondary Market is a feature that we find only on few crowfunding platforms, like Mintos.
YTM (Yield To Maturity) – Yield to maturity is the total return anticipated on a loan if the loan is held until it matures.
Loan Ratings (from A+ to D, Mintos) – Assessment, made by the platform, of the creditworthiness of a borrower. It indicates the risk related to the single loan. A loan rating A is characterized by a lower risk and a lower interest. A loan rating D is characterized by an higher interest but also an high risk.
Outstanding Principal – The outstanding principal is the part of the principal invested in a loan which has not yet been returned to the lender/investor.
I suggest you to learn the meaning of all the terminologies before you start investing. It’s very important to understand on what we’re investing.
I tried to insert all the most important terminologies. If you find more, write a comment and I will add your segguestions to the article, to make it more complete. I hope this article can help you.
If you have any question, tell me in che comments!