Key Points For Investors To Take Away
If you are an investor and interested in participating in P2P lending:
Check if local or cross-border
Check where the platform is incorporated/operating from. If it is operating from outside Hong Kong, Hong Kong investors will face additional cross-border issues when trying to recoup their investment in case of fraud, default or bankruptcy.
Check if licensed or not
Where a platform states that it is licensed by the SFC, you can check the public register on the website of the SFC to verify the platform’s licensing status. Investors should be aware that only if the platform is duly licensed would it be covered by oversight by the SFC and by the SFO and the regulations which the SFC administers.
Also, where a platform states that it is a licensed money lender in Hong Kong, you can check the public register on the website of the Companies Registry to verify the platform’s licensing status.
Understand the investor limitations. The platform may have a limitation that only professional investors can invest in the products and services advertised.
Read any terms and conditions
Read the terms and conditions of the platform, any documentation that you are asked to sign, and any data privacy waivers very carefully.
Understand the safeguards
Understand how the platform is operated and the safeguards it adopts to protect your interests, including your investing interests as well as your data security interests.
What Are The Other Risks Of Peer To Peer Lending
With P2P lending, you make money based on the interest rate you set or agree to. Typical interest rates can vary from 1% to 6%, depending on the risks youre willing to take. Even higher interest rates can be found, but again, this implies much higher risk of losing your money.
In addition to the risk of losing money, the three other main risks of P2P lending are:
It Can Be Tricky To Withdraw Your Money Early
Many P2P lending platforms give you the option to withdraw money early. However, it might not be available to take out immediately, or you might be charged interest for it.
One of Ratesetters products, for instance, charges 30 days interest to access your money before term. Be sure to check the fine print carefully when making your choice.
You May Like: How To Invest Into Roth Ira
My P2p Lending Strategy
I do not have a very well designed P2P Lending strategy honestly. I plan to invest no more than 2.5% of our net worth into it. And I will probably invest less than that.
What I am trying to do is to diversify as much as possible. I am only investing 10 EUR in each loan. And I am only investing in loans with buyback guarantee. I am also diversifying over various loan originators.
I do not know yet if I will keep both platforms. For now, I plan to invest 100 EUR each month into Mintos. If I find a better platform, I will either replace FastInvest or add a third platform to my portfolio.
I also plan to invest in P2P Swiss alternatives later on. But I do not want to have too many financial services at once. It is always better to keep it simple.
In any case, do not forget to secure your account! You want a long password, and you want to use Two-Factor Authentication , available for both services I mentioned.
Check The Platform Operator Is Licensed
Search the following two lists on ASIC Connect’s Professional Registers:
- Australian financial services licensee
- Australian financial services authorised representative
To search, choose the list name in the ‘Select Register’ drop-down menu.
If the operator isn’t on one of these lists, it could be operating illegally.
Read Also: Mortgage Rates For Investment Property Nj
Rules To Borrow On Reddit
There are a few rules to follow if you want to borrow on Reddit.
- Borrowers must have an account at least 90 days old and 1,000+ karma points.
- Borrowers cannot delete any comments or submissions.
- Appropriate title tags must be used . The title must also include the borrowers location.
- The submission form must be filled out correctly.
- No personal information can be publicized without permission.
- Borrowers cannot send unsolicited private messages to others.
- Only one account per borrower is allowed with a maximum of one post per 24-hour period.
- Borrowers must be respectful.
- No external linking or requests for crowdfunding are allowed.
- Monthly payments are usually established privately between the borrower and lender. If a borrower does not repay their loan, they will be banned and reported.
For more information, check out the official rule page.
How To Start Investing In P2p Lending In 2022
You probably have heard of P2P Lending! It is the new trend of investing these days. A lot of people are investing, and some people are even using it as their sole investing instrument.
P2P Lending is much riskier than investing in stocks. And it is much less regulated. It is dangerous! I would never recommend anyone to invest a large amount of money in P2P Lending.
However, it never hurts to stay informed about the trends in investing. And while this is risky, it may be interesting for some small part of your net worth.
When I created my Investor Policy Statement, I stated that I could consider investing between 5% and 10% of my net worth outside of stocks. Therefore, I decided to start researching P2P Lending. And after a while, I decided to start to invest some money.
I have not invested a lot of money into it yet. And I do not plan to invest a lot of money at all. It is just some small diversification. I believe this could not replace stock investing.
In this post, we are going to see the basics of P2P Lending. And I am going to detail my current investments.
Recommended Reading: Investing In Real Estate Abroad
Fees Of P2p Platforms
When choosing a peer-to-peer lending platform, it is important to look at the costs. First of all, most platforms have free registration for lenders. If there is a registration fee, however, it is often no more than 10 euros. There can also be currency exchange fees in place. Typically, the exchange fee does not exceed 2 percent.
Furthermore, if you agree to put your money away for a certain amount of time, you may be charged a fee for withdrawing funds early. Some platforms also ask for secondary market fees. These apply if you want to sell your loan before repayments are finished.
How Safe Is Peer
Bank credit standards have been mostly the same for the past 50 years. The underwriter checks debt and income, evaluates collateral, looks at the credit score and credit history, and then often makes a subjective decision.
Financial technology companies are exploring alternative credit scores, grading loans based on unconventional criteria, and being more flexible with interest rate ranges to match credit risk.
Despite all of this, there will always be P2P loan defaults. Almost every type of loan product has credit risk and has to deal with defaults. The best way to mitigate risk in this type of fintech is with diversification. If you invest $50,000 into P2P lending, it’s better to spread it across 10 borrowers who need $5,000 than to blow it all on one borrower. That way, if one defaults, you’ll still be making money from the others.
You May Like: Macy’s Inc 401k Retirement Investment Plan
Evaluate Your Risk Profile
Be aware that P2P lending is connected to certain risks and that you might lose some or all of your money.
When you deposit your money to the P2P platform, you might feel to urge to check your portfolio every day to see if any loans are delayed. In some time you should learn that this isnt bringing you any value. P2P lending is a great way to earn passive income dont treat it as day trading.
Loans will be delayed, some might even default. Thats why you should also invest in property-backed loans or loans that come with a mortgage as collateral.
Is It Better To Invest Locally Or To Choose A Platform Open To European Residents
European portals offer higher returns, better tools and security in the form of a buyback guarantee. On the other hand, there is always currency risk.
I personally chose the path of European portals and I am very happy with Mintos. This platform is among the best portals in Europe . However, there are flies and there is no such thing as an ideal option.
In addition, the entire industry is developing terribly fast. What I wrote today may not be up to date in a year.
I do not come up with any specific instructions and plans. For my part, I just deal with this so that I have more investment. Different types and currencies. And when a surplus appears on my account above the established reserve, I simply invest in what seems to be the most profitable at the moment.
There is a number of strategies. Short-term loans with a buyback-guarantee are widely popular on Mintos. At Saving Stream people like to buy loans at the beginning of life and sell them somewhere 50 days before the end.
However, when there is a shortage of supply, the strategy cannot always be applied. I personally try to invest only in secured loans with a guarantee or reasonable LTV. In the case of Mintos, I also diversify across currencies, countries and credit score providers. Then there is diversification across portals.
Don’t Miss: What Are Investment Mortgage Rates
History Of P2p Lending
Zopa – the first company to organize P2P lending – was founded in the United Kingdom in 2005. By the end of 2012, it was the largest service in the country with more than 500 thousand customers and over $ 200 million in loans issued.
In 2006, the first P2P lending sites – Prosper and Lending Club – appeared in the US. At the end of 2012, they were the largest in the country with loans totaling $ 1.5 billion.
What Is A Peer
Peer-to-peer lending, also known as social lending, is defined as an act of lending or borrowing money directly from people rather than banks or credit institutions.
P2P lending has been around for a long time and practiced among individuals even before banks had been established. Today, modern technology has allowed the lending process to take place online, prompting the rise of P2P lending platforms.
For a long time, banks were the primary loan providers by utilizing the funds made available by their clients to whom the bank pays a low-interest rate, allowing banks to apply a higher interest rate to the lent money to make a profit.
The benefits of P2P lending are positive to both creditors and recipients: loans are provided faster, more conveniently and more transparently. Mutual lending platforms do not have a fixed interest rate creating a natural competition between investors, that drives the interest rate down.
Another important point is that lenders risk is diversified. This means that several to tens or even hundreds of creditors invest in one loan. This reduces the loss in case the borrowers insolvency because the loss is shared between multiple investors.
Currently, most peer-to-peer lending platforms operate in the UK and the US with the trend coming to Europe and some Asian countries. The very first P2P platform, Zopa, was launched in the UK in 2005. The P2P lending In the UK became so popular, that even the government started to invest.
Don’t Miss: Using Home Equity To Invest In Stock Market
Risk Of Not Getting Your Expected Return
If a borrower repays your loan early or late, you could make less profit than anticipated. Your money also only starts earning interest once it has been lent out, not while its sitting in your P2P account waiting for borrowers.
It could take a few days to find a borrower or, if youre investing a lot, it could take longer for it all to be loaned.
Risks When You Borrow Or Lend Peer
For borrowers, peer-to-peer lending is relatively safe. P2P sites can protect personal and financial information as securely as a traditional lender. However, with traditional lending, borrowers know their money is coming from a trusted source. With peer-to-peer lenders, you could have no idea who youre borrowing from or where the moneys coming from.
On the lending side, while theres an opportunity to earn a profit by investing in peer-to-peer lending, investors take on a big risk. For example, investing in a borrower with a lower credit score could yield higher returns for the lender because of the higher interest rate but with that comes a higher probability of a loan default. Peer lenders arent insured like traditional banks and financial institutions, and they likely wont get their money back in the event of a default.
Also Check: Best Place Real Estate Investment
Beginners Guide To P2p Lending
What is peer to peer lending?
P2P lending is a system of direct loans between a borrower and a lender. These direct loans are managed through a peer to peer lending company which has a platform in the form of a website to administer this process. There are many p2p lending companies that offer different kinds of p2p loan investing opportunities, each type of p2p loan has a different risk profile and return.
Take a more detailed look at: What is peer to peer lending?
How to start investing in peer to peer lending?
Find out who are the main p2p lenders in the country you live in and learn more about what they offer.
As a general reference these are the largest p2p lenders:
See more reviews and interviews of the p2p lending companies:
What are the risks of p2p lending?
P2P lending is not a bank account. There is a difference between saving and investing. Saving is money in a bank account covered by a depositor insurance scheme, investing is when capital is put at risk in exchange of returns. P2P lending is a form of investing. The main risks of peer to peer lending is the risk of default by the borrowers and default by the p2p platform.
The full risks and threats in peer to peer lending are highlighted here: What is peer to peer lending?
What is the difference between p2p lending and crowdfunding?
Your first steps in peer to peer lending
First, choose the p2p platform of your choice:
These functions are common on most peer lending platforms:
Choosing P2p Investment Platform
The process of P2P investing is relatively simple. Once youve found a P2P lending platform you want to invest with, you sign up to become a loan lender – and decide how much money you wish to lend and for how long. You then add funds to your account and start investing in P2P loans. Many P2P companies tie up your funds for an agreed term. Make sure you are comfortable with not seeing your money for a couple of years before committing to such timescales.
With alternative financing companies like FAST INVEST, you have exit options that allow you to stop investing any time. So, if your circumstances change, you have options to sell your investment.
Now, youre probably thinking, How do P2P companies make sure that I lend my money to people who will payback?
With P2P platforms, the borrowers will apply for a loan and go through a verification process. Once their loan request is approved, they will receive a loan for the agreed period of time and will be required to make regular repayments of the borrowed amount, as well as interest, each month.
When it comes to alternative financing, the loan verification process is first completed by licensed lending partners who supply loans to the alternative financing platforms.
Thats followed by another thorough check performed by the platform itself, to ensure the risk is fully evaluated and the borrower will keep up with their payments.
Recommended Reading: Asset Allocation To Alternative Investments
P2p Lending: Pros Cons And How It Compares To Other Investments
When individuals lend money to other individuals or businesses, it is known as peer-to-peer lending. Traditionally, when a person or a business needs to borrow a sum of money, they go to a bank or other financial institution to apply for a loan. P2P lending eliminates the need for the bank as the middleman, directly connecting individuals with money to lend and individuals seeking loans.
Today, well focus on the pros and cons of P2P lending and how it compares to other investment options.
P2P lending matches investors and borrowers without a bank as a middleman.
Online P2P lending took off in 2005, though peer-to-peer lending as a concept has been around for hundreds of years. Today, P2P lending is not only seen as a convenient way to connect individual creditors and borrowers, but as a potentially lucrative investment opportunity.
Is P2p Lending A Good Investment For You
So, what have you got to lose? More importantly, would you be okay with losing it? These are risk assessment questions you must ask yourself before investing in P2P loans. This can be a high-stakes venture, and as the uncle of a local neighborhood superhero once said, with great power comes great responsibility.
Some platforms offer investors more agency in determining who their money is loaned to and how much interest to charge them. But, this also means the onus is on you to conduct a background check on these potential borrowers. This can be a lengthy and involved process that shouldn’t be overlooked, so if you don’t have a penchant for investigating a person’s financial history, you should probably look for platforms that conduct thorough due diligence for you. Alternatively, investors looking for a more passive and traditional way to invest in loans can invest in peer-to-peer lending platforms through the stock market, such as Lending Club Corp. , or bank loan mutual funds, like the Fidelity Floating Rate High Income .
For those willing to put in the time and effort into researching their investment opportunities, P2P loans are a great way to make your money make money. If you’re still unsure, you can always view this investment through the classic lens of the risk-reward ratio. If you’re comfortable with taking a higher risk for the potential of higher returns in the future, then P2P loans might be a good idea for you.
Don’t Miss: How To Invest In Crypto Exchanges