Are you familiar with primary and secondary markets?
If not, don’t worry.
The P2P world is full of unique industry terms and the more time you spend learning about P2P investing, the more terms you will come across.
The primary market is where it all begins: it’s where you’ll find the original loans issued by lenders which you can invest in. The secondary market is where you go to sell your loans if you don’t want to wait till the repayment term is up – and if you’re a bit more experienced, it’s where you go to buy already issued loans.
In this post, we’ll be covering the difference between the primary vs secondary markets, and when to invest in each one.
What’s the primary market?
The primary market is where the peer to peer loans are first issued. When you first create an account with a P2P platform, you will be investing in loans that they are sourced either from loan originators or directly from borrowers.
In the case of Swaper, you’ll be investing in loans that are issued by Wandoo, our loan originator that offers loans to borrowers from Poland and Spain. The role of the primary market is to allow investors to buy newly issued loans.
When you open your Swaper account and use the auto-invest function, you will be investing in primary market loans that are issued by Wandoo. Our loans are short-term (30-35 days long) so you’ll receive the payments from the loans relatively quickly.
You can choose to receive that income and keep it, or there is an automatic re-invest function that allows you to invest the money online and back into loans on the primary market.
What is the secondary market?
The secondary market is where you sell your loans if you want to receive your money before the loan term is up. It’s also somewhere you can go to buy loans at a discount from other investors that have already begun their repayment period.
Secondary markets vary between P2P platforms; some don’t offer secondary markets, and many offer secondary markets but charge a fee if you want to sell your loans.
On some platforms, the secondary market is like a marketplace: you have more flexibility to buy loans that have already been issued and might be cheaper. As the seller, you may need to pay a fee to sell your loans and cash out early, sometimes in the form of a discount or a premium.
At Swaper, we offer a secondary market only to sellers. That means that you can sell your loans early and we’ll buy them back from you. We don’t charge any fees for selling, so you won’t lose out on money for cashing out early. We then re-issue those loans to other investors back on the primary market.
Although you can invest manually on Swaper, we don’t offer the option to buy loans that are specifically on the secondary market.
When should you invest in the primary market?
The primary market is the main place you’ll find loans issued by individuals and loan originators. If you’re a beginner P2P investor, the primary market is the best place to start because it’s what the auto-invest feature invests in. With auto-invest, you just need to add funds and we’ll automatically invest in loans as they come up, following the criteria you set.
The advantages of the primary market is that you’ll usually find the best loans since that is where they are first issued and where you’ll have the largest variety of high-quality loans. The secondary market is where you buy from other investors; it may be harder to find high-quality loans and you’ll never really know why they are selling in the first place.
When should you invest in the secondary market?
The main benefit of investing in the secondary market is that you have more flexibility and options. You can choose to invest in loans that have already been issued, which means you’ll be able to access them immediately instead of waiting for a primary market loan to be funded (which can cause an excess of cash in your account that doesn’t end up invested, called cash drag).
The other benefit is that you’ll have more history and information on the loans you’re investing in since the borrower will have been repaying for some time already – this can give you the peace of mind that they’ll keep paying.
If you prefer investing in loans that follow strict criteria, you may find it difficult to find those specific loans on the primary market. That’s when you’ll sometimes need to go to the secondary market in order to find them. Many experienced P2P investors buy cheaper loans on the secondary market and then make a higher profit.
In general, buying on the secondary market is for more experienced P2P investors who want to diversify their portfolio and have more control over their investments. At present, we only offer the primary market because it usually is a lot more straightforward, secure and easy to use. All our loans are issued from one loan originator, Wandoo.
Why would you want to sell your loans on the secondary market? You may want to sell so you can free up some funds to spend on other loans. Or maybe you need the money earlier for personal reasons. Declining market conditions might tempt you to cash out your loans more quickly. Usually, it’s best to wait until the loan you’ve bought is fully repaid, then you’ll receive all the interest payments and will make the most from your investment.
With Swaper, our loans are 30-day consumer loans which means you won’t have to wait too long for your payments. This is different to other P2P investment platforms that offer loans that span several years.
If you want to have more control over your loans, you do have the option of manual investing with Swaper. However, we recommend you leave your investments on the auto-invest function.
The one we’ve set up on Swaper will get you in investing in loans as they come onto the primary market with the optimal criteria set up.
Primary vs secondary markets: Which one is for you?
We hope that this short guide has made it clear the main difference between primary and secondary markets.
At Swaper, we wanted to make P2P investing as straightforward as possible.
So, whether you’re a beginner investor or are more experienced, you’ll be able to make an excellent return on your P2P loan investments.
Invest in the primary market, and sell on the secondary market if you ever want to cash out early.
The best part? It couldn’t be easier with a Swaper account!
(Especially when you download our P2P loan app).