Investment glossary

Understand the terms used in platform reviews and calculators.

39 terms

APR

An annual rate quoted without assuming that interest is reinvested. Check whether fees are included before comparing two APR figures.

APY

An annual yield that includes the stated compounding convention. A quoted APY does not account for every possible loan loss or withdrawal restriction.

Auto-invest

Rules that allocate available cash to investments automatically. Review the rules and concentration limits when the loan supply changes. The profiles of platforms offering auto-invest help you check which allocation limits are available.

Bond

A debt security issued by a company or government.

Buyback obligation

A buyback obligation makes a named counterparty responsible for repurchasing a claim when contractual conditions are met. Read the trigger, waiting period and purchase price, including whether unpaid interest is covered. The borrower and the buyback provider can fail together. The promise therefore changes the source of risk rather than turning the loan into an insured deposit. When comparing platforms with buyback commitments, check who owes the repayment and which delays trigger it.

Capital loss

Principal that an investor does not recover. Separate completed write-offs from money still subject to collection or a disputed valuation.

Cash drag

The effect of uninvested cash earning less than the invested part of a portfolio. A 12% loan rate is not a 12% portfolio return if part of the balance stays idle.

Collateral

Collateral is an asset over which a creditor has enforceable rights supporting a debt. Its usefulness depends on the claim's priority, the asset's sale value and the cost and time of enforcement. Identify who holds the security and acts for investors. The existence of a property valuation does not by itself establish a valid security interest or assure full repayment.

Concentration risk

Exposure to the same underlying borrower, business group, country or asset. Different platform names can still lead to the same source of risk.

Coupon

The contractual interest payment on a bond.

Crowdfunding

Raising money from multiple contributors through a platform. Loans, company shares, rewards and donations give contributors very different rights. The guide to types of crowdfunding separates lending, equity, donations and other models by what the contributor receives.

Crowdlending

Funding loans through an online platform. The agreement identifies who owes the money and what happens when payments stop.

Default

Failure to meet a defined credit obligation. Always read the trigger: days overdue, insolvency and an assessment of unlikely repayment are different tests.

Default rate

A default rate needs both a definition of default and a denominator. Two failed loans out of 100 give a 2% count-based rate. If those two loans represent €40,000 of a €100,000 book, the amount-based figure is 40%. Reporting period, loan age and treatment of repurchases also matter. Neither figure alone states the final loss after recoveries. The default and loss data section distinguishes published measures by their definitions and reporting periods.

Diversification

Spreading exposures so that one failed investment affects a smaller part of the portfolio. Shared economic risks can still cause several investments to fall together.

ECSP

European Crowdfunding Service Provider. Authorisation sets rules for covered crowdfunding services; it does not turn a project into an insured deposit.

Equity

Ownership in a company or project. Dividends and an eventual sale depend on business outcomes; there may be no fixed repayment date.

ETF

An exchange-traded fund holding a basket of assets. Its risk follows those assets, its costs and its structure; an ETF is not automatically low risk.

FIRE

Financial independence, retire early. Planning compares invested capital with future spending under explicit return and withdrawal assumptions. The FIRE calculator lets you explore how spending and withdrawal assumptions change the capital required.

Inflation

A change in the general price level.

IRR / XIRR

IRR is the discount rate at which the present value of money paid in equals the present value of money received. XIRR additionally uses actual calendar dates. Both depend on the value assigned to positions still held at the measurement date. An optimistic valuation of unpaid loans can inflate the result. Some cash-flow patterns have multiple solutions, so the percentage needs to be read alongside the underlying payments.

KIIS

Key investment information sheet. Read the project terms, risk factors and costs before committing money; a standard document is not an endorsement.

Liquidity

The ability to turn an investment into spendable cash. A listed sale option does not ensure that a buyer will appear at your desired price.

Loan originator

The business that initially grants a loan. On a marketplace, investors may also depend on this business to service payments or honour buyback obligations. The explanation of peer-to-peer lending places the originator within the chain connecting borrowers and investors.

LTV

Loan-to-value divides debt by the collateral valuation used in the calculation. A €180,000 loan against a €300,000 property gives 60% LTV. Check whether that valuation is for the property today or after construction. Prior-ranking debt, selling expenses and a lower forced-sale price can consume the apparent cushion; a low advertised ratio is not a guaranteed recovery amount.

Maturity

The scheduled date for principal repayment.

Net return

Return after the deductions specified by its publisher. Check whether the calculation includes fees, provisions, realised losses, taxes and idle cash.

Overdue loan

A payment has passed its due date. The number of days late and whether the loan was extended both matter when interpreting arrears.

P2P lending

Online lending that connects investors with borrowers or loan claims. The legal claim may be against a borrower, an originator or an issuing vehicle.

Provision

A provision recognises an expected loss before the outcome is settled. If a €1,000 claim is expected to return only €650, its estimated shortfall is €350. The estimate can change with new information. This accounting adjustment is different from a cash reserve fund: recording a provision does not put money aside to repay investors.

Real return

Growth after inflation. Calculate it as (1 + nominal return) divided by (1 + inflation), minus one, using decimal rates.

Recovery

Collection activity after a payment problem, including enforcement or negotiated repayment. A portfolio in recovery measures exposure still being worked out.

Recovery rate

The recovery rate measures receipts from defaulted exposure against a stated base. Record whether it includes interest, deducts legal expenses and covers open as well as closed cases. Recovering 80% after five years is not economically equivalent to receiving 80% immediately. A percentage calculated only from resolved cases can overstate the outlook for the remaining portfolio.

Secondary market

A facility for selling an existing investment to another investor. Sale timing, discounts, fees and eligibility rules affect how useful it is. Among platforms with secondary markets, sale conditions and fees vary, so availability alone is not a measure of liquidity.

Sequence-of-returns risk

Sequence risk is the effect of when losses occur while money is being added or withdrawn. With withdrawals, an early fall forces the same spending to consume a larger share of the remaining assets. Later gains then act on a smaller balance. Two return sequences with the same average can therefore leave different amounts of money for retirement.

Vintage

A group of loans originated during the same period. Comparing vintages helps distinguish ageing loans from a rapidly growing new loan book.

Withdrawal rate

Annual portfolio withdrawals divided by portfolio value. A planning rate is an assumption, not a promise that the money will last.