I have been aware of Trustbuddy for some time. They are (at least internationally) pretty unknown since they do not do much marketing. I have only once written about them before, in order not to give publicity to a company which charges interest loans for rates in a height, that I deem could be called usury (on moral grounds not on legal grounds).
According to their own published figures on the site the current ‘Effective annual interest’ for a one year loan varies between 219% and 852% (733% to 5102% for a one month loan).
While Trustbuddy calls itself a p2p lending service, their rates are somewhat closer to Wonga (see Need a loan at 2334 percent APR).
Why do I now write about Trustbuddy then?
Well ignoring them, won’t make business models like these disappear. And it seems to be profitable for the service as well for lenders as per the numbers that Trustbuddy supplied P2P-Banking.com.
But the main questions I ask lenders is: Do you feel it is ethical to earn the 12% p.a. interest rate given the costs the borrowers are charged? If you answer this with yes for yourself, then Trustbuddy may be a good choice for you.
Furthermore Trustbuddy is one of few companies in this business that have a drive for international expansion. Remember they bought Loanland operations earlier.
The following is information supplied by Trustbuddy:
TrustBuddy AB (2009), a Swedish P2P lending facilitation company. Using in-house developed and proprietary mobile-/web-based financing solutions, it facilitates smaller short-term loans between private consumers. The company does not lend out its own money; pooled loan-portfolio investors provide funding. TrustBuddy has already reached close to 40,000 registered members, of which more than 20,000 are active customers, in Norway and Sweden alone. This is done with virtually no marketing efforts, showing how popular the product is. The business model is to charge fees on the facilitation process, whereby charges occur throughout the application process, all through to repayment or debt collection, and through administration fees, collection fees and premium SMS revenues. TrustBuddy became cash flow positive after a few months of operations. It has given loan-portfolio investors a high return on the funding (currently more than 15% p.a.), with virtually no losses (bad debt figures of below 1%). Loans are considered somewhat expensive; 12% interest per loan plus charges, but they are fast and easy to get, if one is credit worthy. Lenders have diversified risks covering many loans with a low amount in each loan. All borrowers and lenders are identified through the failsafe ?BankID? identity system. Credit-worthiness is instantly certified (or denied) by online credit check companies in each targeted market, creating a low risk customer base. …
TrustBuddy is online in Sweden, Norway and Slovenia. …
TrustBuddy is applying to be listed on the NASDAQ First North in Stockholm (Sweden), through a reverse merger with 360 Holding AB (publ). Existing business in 360H is sold off.
Additional financial details:
— TrustBuddy’s business maintains its strong growth and profitability. In the first part of 2011, the company has seen a monthly growth in number of customers of 63.8% in Norway and approx. 60% in Sweden. The product is gaining popularity, and the company’s international expansion plan is on schedule. …
— The private placement held by TrustBuddy’s holding company was concluded in one week in the start of June 2011. The placement was oversubscribed by more than 50% (above the minimum limit), collecting SEK 4.5 million in new capital for the company. These funds are being transfered to TrustBuddy AB prior to the merger with 360 Holding AB (Publ).
— The audited accounts of TrustBuddy AB for 2010 show a profit of SEK 2.5 million.
(Photo credit: Demi-Brooke)
“‘Effective annual interest’ for a one year loan varies between 219% and 852% (733% to 5102% for a one month loan).”
Not that im an expert but comparing interest rates for short term loans and long term loans is not a fair comparison. As an analogy:
Where i live it costs about $50 for a 15 km cab ride. Compared to owning a car this is extremely expensive as the cost for those 15km would be maybe just $1-2. But the reason you hire the cab to drive you is exactly the same reason you would get a short interest loan at excessive rates; for some reason you don’t own a car. Does that mean you should be doomed to walk instead of taking a cab? No, even though the cab fare is expensive its still worth the money for you right then and there compared to the alternative.
As for these short term loans its the same thing, many people will find themselves in situations where just a little credit can have a huge impact and that they (for whatever reason) have been cut off from the regular credit market.
Just imagine yourself in this situation: its 20 days until payday, you low on cash. Your car breaks down. You actually need that car to go to work. It is worth paying $50 in interest for a $500 loan for those 20 days, you will actually be able to go to work. Maybe even keep your job at all.
Its extremely unemphatic to dismiss these P2P loans as usury, because the alternative for many people is so much worse.
If you disagree, YOU put up your hard earned cash and loan to people without credit rating at low low rates. Vote with your wallet…
Thank you for your input rumbo!
I will try to clarify a couple of things due to TrustBuddy`s business model.
The yearly interest is calculated from a given specification of Finansinspektionen in Sweden/Norway that we are obligated to follow and do not represent the actual interest.
First of all it is important to remember that the first 14 days for the borrower is 100% cost free. This means if they loan 5.000 and pay back within the 14 days they only pay the initial 5.000. This strongly shows that we give back something to our members.
If you borrow 5.000 given by our lenders, if you keep the loan for more than 14 days the cost is 970 after 30 days. If you don’t pay back or make a payment agreement no more interest wil be charged, except one renewal fee which is optional if you want to keep the loan for a longer period. So this is not a “bank loan†where the interest is running wild……
The total cost of Max 1.440 is for 60 days or 360 days due to an expected pay back plan. If you calculate this penny for penny the interest is actual quit low due to the risk for the lender.
TrustBuddy commits to ensure that everyone pays back by using the system we have in Scandinavia. The result for this is less than 0,5% default. As far as we can see this is for the benefit of both borrowers and lenders.