What are the risks in this kind of investment?

Klear is not a bank. Your are not investing in deposits, so you’re not covered by the existing guarantee of deposits up 196 000 BGN. As other investment options, the returns are higher but there are risks.

Credit risk
In spite of our thorough selection, accidents of life happen. Some borrowers may not be able to repay fully their credit because they become out of job, sick, invalid or die. Statistically, a fraction of the borrowers will unfortunately face such kind of issues.

It’s why we apply a risk based pricing for each borrower. The interest rate he will get depends on its credit risk in order to ensure, in average, a targeted net return after credit risk.

It’s why it’s essential to diversify. You should not put all your eggs in a single basket. You should rather invest small amounts in as many borrowers as possible. We consider that it’s necessary to invest at least in 50 loans to get a stable return.

It’s also important to mention that we take care of the collection in case a borrower is in delay.

Liquidity risk
With Peer to Peer Lending, you will get back your money progressively month after month until the end of the loans you invested in. The maturity of the loans is an important element in your investment strategy.

Besides, it is not recommended to invest in Peer to Peer Lending money for emergency situations or money you may need before the term of your investments.

In case you unexpectedly need to get back your money earlier than planned, we offer you the possibility to sell your credits in the platform. However there is no guarantee that someone will buy at the price you may expect.

You may also be exposed to the interest rate risk. At the time you decide to sell, if the interest rates of the market are higher than the ones at the time you invested, you may be obliged to sell with a discount.

On the other end, if the interest rates of the market have decreased, then you should probably be able to sell with a premium!

This potential interest rate risk applies only on the loans with a fixed interest rate. The loans with a variable interest rate will mechanically be on par with the current market conditions and there would be no justification for a discount or a premium.

Macroeconomic risk
In case of economic crisis, borrowers will probably face more difficulties to repay their loan, which would impact negatively the net return for investors.

However we believe that this impact in Klear would be limited because we target prime borrowers, a segment which is much less sensitive to such deterioration of the economy.

It’s interesting to notice that Zopa kept a positive net returns after the big crisis of 2008. The same cannot be said about people who invested in the stock market just before.