Introduction
What is P2P Lending?
P2P lending, which stands for peer-to-peer lending, is also known as social lending. This is considered as a system that allows a borrower and a lender to administer direct loan processes. There are a number of P2P lending companies that offer numerous kinds of loan investing opportunities. Moreover, if you are planning to get involved with P2P lending, it is important that you understand the different risk profiles and return of each agreement.
Do note that P2P lending has processes that are quite different as compared to that of a bank loan. When you acquire a loan from a bank, the bank will use its own assets to process your request. This means that the deposits made into the customers’ accounts are used to fund the loan.
On the other hand, P2P lending allows borrowers to be matched directly with an investor through a lending platform. The investors can easily see and select which of the loans they want to fund. Most of the times, those who avail of a P2P loan would want to finance the operations of their small businesses or would want to borrow money for personal purposes.
There are a number of P2P lending platforms that are subjected to certain restrictions. Moreover, there are also P2P lending companies that are open to every individual who can meet the account minimums. There are also some who are only open to qualified purchasers and accredited investors. With that in mind, it is important to assess your current standing before choosing one of the many P2P lending companies that are available in the market.
Top P2P Lenders in the World
If you want to ensure that your lending process is secure, one tip would be to choose a well-known P2P company. Typically, these are those that have already gained the trust of both lenders and borrowers.
Here are some of the top P2P lenders in the world. You can very well check out their services and requirements to see if they are a good fit for you
Zopa
Zopa was first founded in 2005. In fact, the whole process of P2P lending started with Zopa. Today, it is considered as one of the largest and oldest P2P lending company. What’s most surprising is that this company was one of those who have survived the 2008 Financial Crisis.
Zopa has about 75,000 active investors who have lent over an amount of £3 billion to its borrowers. One of the best things about Zopa is that it is easy to use considering the fact that it as only two simple investment choices – standard and ISA.
Rate Setter
Rate Setter was established in October 2010. It is considered by most as one of the safest and most secure P2P lending platforms in the world. The investment options offered by Rate Setter are very basic. However, it is highly advisable that you acquire a watchful eye so that you can easily monitor the return rates.
Mintos
Mintos is a huge loan aggregator. It offers numerous loan options that range from business, personal, property, and cars. Do note that these are underwritten through various European finance companies.
Lending Club
With Lending Club, an investor can easily acquire a dramatically high return. However, do note that there are a number of requirements to be fulfilled by an investor. When it comes to the Lending Club, always remember that the higher the risk, the higher the potential reward.
Nonetheless, the interest rates of Lending Club are safe and its fixed-income investments are sitting generally at below 1%. There is a 25$ minimum investment with an average return of 5.06% up to 8.74%.
Prosper
Prosper P2P Lending has been around for over 13 years. Thus, you can guarantee that lending and borrowing money from them is safe and legit. In addition, Prosper has also been BBB accredited with an A+ rating for the last 7 years.
What are the Risks of P2P Lending?
Despite ensuring that the company is a legitimate P2P lending firm, it is always crucial that you understand the risks present in the process of P2P lending itself.
The borrower doesn’t pay
This is one of the most common and obvious risks in lending money. When a borrower does not pay, it could mean that you have lost the money you invested in that loan. Thus, it is important to look for a platform that guarantees safety features like a Buyback Guarantee.
Buyback guarantees mean that the loan originator, which is the P2P lending firm, will buy the loan from you. You will get the accrued interest in addition to the principal amount. With this safety feature, you get some kind of protection in exchange for a premium.
The value of the collateral went down
For those who invest in loans that are secured by collateral, the loan-to-value is crucial. This is the ratio between the loan amount and the market value of the collateral. Remember, loans that are at least 70% or less of the collateral value is deemed secure.
The loan originator or platform goes out of business
Another common risk that may arise with P2P lending is when the loan originator or the P2P lending company goes out of business. This is why it is important that you pay attention to the company history of a P2P platform.
How to Reduce the Risks in P2P Lending
With all of these risks present in a typical P2P lending transaction, you may start to wonder if there are certain ways to avoid it. When it comes to lending, risks will always be present. The best way that you can get the most out of a P2P lending transaction is to reduce the chances of it ever happening; here’s how!
Step-by-Step Process of P2P Lending
Step 1: Ask yourself if you have money to invest
Of course, you have to ask yourself if you have enough money to start investing in P2P platforms. This is why one of the most common advice given to those who wish to invest in these transactions is to only invest an amount of your savings or income.
Step 2: Choose a P2P platform of your choice
Ever since the launch of Zopa, there have been a number of P2P platforms in Europe and America. Each of these platforms offers various services at different rates. As a lender, you have to understand what each platform offers, so you can effectively choose which among them is the perfect fit for you.
Step 3: Learn how the P2P platform works
The first two steps are self-explanatory. To guarantee that your P2P lending experience is a success, you only have to perform proper research and ensure that you understand how the P2P platform of your choice works.
Once you have chosen a P2P platform, here are the possible succeeding steps to be followed. Of course, these would vary depending on what platform you choose.
Send the necessary documents as part of your signing up process.
What is P2P Lending?
P2P lending, which stands for peer-to-peer lending, is also known as social lending. This is considered as a system that allows a borrower and a lender to administer direct loan processes. There are a number of P2P lending companies that offer numerous kinds of loan investing opportunities. Moreover, if you are planning to get involved with P2P lending, it is important that you understand the different risk profiles and return of each agreement.
Do note that P2P lending has processes that are quite different as compared to that of a bank loan. When you acquire a loan from a bank, the bank will use its own assets to process your request. This means that the deposits made into the customers’ accounts are used to fund the loan.
On the other hand, P2P lending allows borrowers to be matched directly with an investor through a lending platform. The investors can easily see and select which of the loans they want to fund. Most of the times, those who avail of a P2P loan would want to finance the operations of their small businesses or would want to borrow money for personal purposes.
There are a number of P2P lending platforms that are subjected to certain restrictions. Moreover, there are also P2P lending companies that are open to every individual who can meet the account minimums. There are also some who are only open to qualified purchasers and accredited investors. With that in mind, it is important to assess your current standing before choosing one of the many P2P lending companies that are available in the market.
Top P2P Lenders in the World
If you want to ensure that your lending process is secure, one tip would be to choose a well-known P2P company. Typically, these are those that have already gained the trust of both lenders and borrowers.
Here are some of the top P2P lenders in the world. You can very well check out their services and requirements to see if they are a good fit for you
Zopa
Zopa was first founded in 2005. In fact, the whole process of P2P lending started with Zopa. Today, it is considered as one of the largest and oldest P2P lending company. What’s most surprising is that this company was one of those who have survived the 2008 Financial Crisis.
Zopa has about 75,000 active investors who have lent over an amount of £3 billion to its borrowers. One of the best things about Zopa is that it is easy to use considering the fact that it as only two simple investment choices – standard and ISA.
Rate Setter
Rate Setter was established in October 2010. It is considered by most as one of the safest and most secure P2P lending platforms in the world. The investment options offered by Rate Setter are very basic. However, it is highly advisable that you acquire a watchful eye so that you can easily monitor the return rates.
Mintos
Mintos is a huge loan aggregator. It offers numerous loan options that range from business, personal, property, and cars. Do note that these are underwritten through various European finance companies.
Lending Club
With Lending Club, an investor can easily acquire a dramatically high return. However, do note that there are a number of requirements to be fulfilled by an investor. When it comes to the Lending Club, always remember that the higher the risk, the higher the potential reward.
Nonetheless, the interest rates of Lending Club are safe and its fixed-income investments are sitting generally at below 1%. There is a 25$ minimum investment with an average return of 5.06% up to 8.74%.
Prosper
Prosper P2P Lending has been around for over 13 years. Thus, you can guarantee that lending and borrowing money from them is safe and legit. In addition, Prosper has also been BBB accredited with an A+ rating for the last 7 years.
What are the Risks of P2P Lending?
Despite ensuring that the company is a legitimate P2P lending firm, it is always crucial that you understand the risks present in the process of P2P lending itself.
The borrower doesn’t pay
This is one of the most common and obvious risks in lending money. When a borrower does not pay, it could mean that you have lost the money you invested in that loan. Thus, it is important to look for a platform that guarantees safety features like a Buyback Guarantee.
Buyback guarantees mean that the loan originator, which is the P2P lending firm, will buy the loan from you. You will get the accrued interest in addition to the principal amount. With this safety feature, you get some kind of protection in exchange for a premium.
The value of the collateral went down
For those who invest in loans that are secured by collateral, the loan-to-value is crucial. This is the ratio between the loan amount and the market value of the collateral. Remember, loans that are at least 70% or less of the collateral value is deemed secure.
The loan originator or platform goes out of business
Another common risk that may arise with P2P lending is when the loan originator or the P2P lending company goes out of business. This is why it is important that you pay attention to the company history of a P2P platform.
How to Reduce the Risks in P2P Lending
With all of these risks present in a typical P2P lending transaction, you may start to wonder if there are certain ways to avoid it. When it comes to lending, risks will always be present. The best way that you can get the most out of a P2P lending transaction is to reduce the chances of it ever happening; here’s how!
- Understand the P2P platform that you are using
- Do not go overboard and lend your entire savings on one P2P platform
- Split your money among different P2P platforms
- Choose the borrower wisely and perform proper research
- Stay invested and be cautious
Step-by-Step Process of P2P Lending
Step 1: Ask yourself if you have money to invest
Of course, you have to ask yourself if you have enough money to start investing in P2P platforms. This is why one of the most common advice given to those who wish to invest in these transactions is to only invest an amount of your savings or income.
Step 2: Choose a P2P platform of your choice
Ever since the launch of Zopa, there have been a number of P2P platforms in Europe and America. Each of these platforms offers various services at different rates. As a lender, you have to understand what each platform offers, so you can effectively choose which among them is the perfect fit for you.
Step 3: Learn how the P2P platform works
The first two steps are self-explanatory. To guarantee that your P2P lending experience is a success, you only have to perform proper research and ensure that you understand how the P2P platform of your choice works.
Once you have chosen a P2P platform, here are the possible succeeding steps to be followed. Of course, these would vary depending on what platform you choose.
Send the necessary documents as part of your signing up process.
- Make an initial deposit in order to have your account be activated and approved.
- Make a small initial investment to test the waters.
- Withdraw a small number of your earnings to test the withdrawal process and ensure that the P2P platform is a legit firm.
- Explore and learn about different loan types offered by the P2P platform.
