How to Lend Through P2P Lending Platforms (Europe)

Everyone has ever dreamed of having high income from work or business, a secure family and money aside. If you look around and look for an investment to help you achieve long-term financial health, investing in P2P loans can be an interesting way for young and middle-aged European investors.

The value of the money in our account is constantly shrinking because of inflation. Although inflation is minimal today, we still have ideas about how we could evaluate this money. You do not have to save any big capital, invest money through peer to peer lending can start quietly from a 10 Euros.

Why invest through a p2p lending platform?

Today, more than ever, investors are looking for new opportunities for appreciating money. Stocks are not for everyone and modern speculation on cryptocurrencies as well. If you are satisfied with lower appreciations (approximately 10% per annum), then P2P investing, financing “people for people” personal loans, could really interest you.

I believe that today, more than ever, investments in P2P loans is represented in the investment portfolio of many and small investors. It usually offers a safe assessment of approximately 1% per month. Moreover, today, investment through Mintos www.mintos.com in P2P loans is very popular.

Although I experimented in small amounts with investing in P2P loans since 2014, it was only on one portal. At the beginning of 2017, I conducted a larger survey and wanted to diversify my investment portfolio. I read foreign websites and the European blogosphere. Investing is primarily about awareness, diversification and perseverance.

My beginnings were the same as everyone. 3 times a day to see what is new. How much did I earn? Is everyone paying? Fortunately, I calmed down quite quickly and today I mainly try to save my time and use auto invest feature.

There is no rule that determines the specific percentage of the portfolio that P2P loans should form. That depends on each individual, and there are many variables. You can start with a surprisingly small amount.

The minimum share of the loan for most portals is 10 EUR. However, a higher total amount and number of personal loans means better diversification. The return ranges from 6% to 18% per annum. For each portal it is a little different, most often it is 1% per month.

Alternative investments are currently on a big rise not only among existing investors, but also among emerging investors and speculators. P2P loans (peer-to-peer lending) are now one of the interesting asset class for how to make good value of deposited money.

History of P2P Lending

Zopa (Zone of Possible Agreement) - 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.

How does peer to peer lending work?

The principle of peer-to-peer lending is quite simple. On the one hand, an investor would like to lend through P2P lending platforms, on the other hand, a borrower. The P2P platform then acts as an intermediary that connects supply with demand, ensures the administration of the loan and the transfer of money between the lender and the borrower, and collects a fee from both of them.

In the P2P (peer-to-peer) funding process there are three parties — investor, broker and borrower. Therefore, there is no bank here. In this case, the intermediary is a system bringing together investors and loan applicants so that they can “find each other”.

Such a platform will then ensure their contact, most of the administration, money transfer and other similar matters, for which, of course, will charge a commission later. The advantage of such pesonal loans is usually both more favorable conditions for borrowers and the possibility of appreciation of deposits for investors.

As a new investor, can I be sure I get the money back?

There is no such thing as a safe investment. I personally invest only money I can afford to lose. And always enough not to get into existential problems. In general, I think that the risks of peer-to-peer lending platforms are underestimated today.

As an example, I can cite the Saving Stream portal, which appeared to everyone a year and a half ago as an excellent choice. Today, they have over a dozen giant loans in default, reducing returns and came up with an adjustment of conditions that are quite disadvantageous for investors.

For example, if the loan exceeds the period of 60 days past due, interest is paid in a one-time period only after full repayment. This has a huge impact on the liquidity of the marketplace, because, of course, no one wants to hold these personal loans.

I want to say just one thing, the portal, which today seems to be an ideal option, may not be an ideal choice in 2 years. Adjustment to conditions or environments is a risk, but it is a very unpredictable thing that, for example, has completely changed Bondora.

Of course, if you are primarily interested in high interest and are not afraid to take risks, you can also invest in less proven or risky borrowers. On some platforms, you can also apply for collateral of the loan through the guarantor or the pledge of the property.

With P2P investment, you do not have to worry about being left on the mere honesty of borrowers. The possibility of sanctions and possible recovery of payments in case of non-compliance with the terms of the loan is secured by each P2P platform, the difference is only in how such services are financed. If the recovery is paid by the platform, it first deducts all costs from the paid amount, and only then goes to the investor. You also often have the opportunity to sell out the invested loan within the secondary market.

In general, it is recommended to invest in a larger number of loans with different maturities and risk levels.

Is it better (more profitable, safer) 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 (even according to the TrustPilot portal). 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.

How to start investing in P2P loans?

You really need to act. Even if it means making mistakes initially, such an approach will pay off in the long run. How to start? Make a decision, take a small amount and send it to peer to peer lending sites of your choice.

In extreme cases, this can be done even in a few days. Learn and slowly build up the habit. With the first investment, a person begins to change his mind a lot and a lot of things in his life begins to slowly rethink.

In most cases, you just need to enter a couple of personal and contact details and invest immediately.

In the administration screen, you can see an overview of people applying for loans, interest rates and other important information. At the same time, the system provides a rating of individual borrowers based on reliability, which can make it easier for you to navigate and choose a loan.

P2P platforms for investors in loans often operate in the “Automatic Portfolio Manager” mode — so you can set the criteria for selecting loans (e.g. 2 years maturity, 10% yield) and portfolio manager (in practice it is a robotic script) filters out these loans and you invest in them the selected amount (e.g. from 5 Euro).

Is investing in P2P loans worth your attention? If so, where?

It is thanks to the digitization and automation of the entire credit score system that P2P loans, on the one hand, have a significantly lower interest rate and, on the other hand, also higher returns for investors; compared to classic bank deposits or investment programs.

For example, let us look at the company Mintos, based in Lithuania. It mediates social and non-bank loans in Great Britain, Germany, Poland and other countries.

The platform itself announces — Register today and join 32 557 other investors, who to date earned an interest of €6 815 959. Impressive, however, what do the statistics look like in practice?

The average return on investment has been around 12% per annum over the long term, which is a very impressive figure. A huge advantage is also the size of this marketplace. There are currently more than 20,000 loans available; not only short-term, but also long term for acquiring real estate, etc.

In addition, the platform offers complete support in many languages and intuitive user experience. It also offers a sophisticated secondary market, where you can sell the loan to another interested party if necessary.

The disadvantage of Mintos is the investment in foreign currencies and the associated exchange rate risk, which can easily erase our revenues.