Are you seeking to invest in P2P loans and wondering which investment platform you should use?
If you’re starting with P2P lending, the first experience will establish your long-term P2P lending strategy.
When considering peer-to-peer lending (P2P lending) as an investment alternative, selecting the best investment platform will be critical to your investing success.
Investors are always enticed and lured with attractive rates and bonuses and supposed ease to do business. Yet, once they choose an investment platform, other caveats emerge.
Peer-to-peer lending, also referred to as crowdfunding, is a practice that unites borrowers looking to borrow funds, with lenders or investors.
Companies (like Monestro) offer their services to match borrowers (we actually only use Loan Originators, we’ll explain later) with investors online. This allows for lower overhead costs and makes investment fees much lower than traditional financial institutions, including banks and hedge funds.
Crowdfunding and P2P investing can offer (not guarantee) investors higher returns. Although there is still an element of risk involved as borrowers can always default on their loans.
All investments involve a level of risk, and P2P lending is no exception. This is why it is imperative that newer investors understand the potential risk to their capital and make informed decisions about each investment and who is behind them.
Selecting the best investment platform – one aligned with your acceptable degree of risk is paramount to ensuring you have a positive peer-to-peer experience.
8 tips for picking the best P2P investment platform
1. Track record of at least three years
Although past performance does not indicate future results, it is one element in considering where to invest. But can you find this information online? If you can, then this signifies this investment platform can demonstrate success.
Investing in a new P2P investment site that has only recently launched will lack transparency and customer reviews. Meaning that you have no indication or data about how successful they are.
When you have found a platform’s stats, examine the following:
- When did the investment platform go live?
- How much have investors earned through the site?
- How many funded loans are there?
- What is the active user base – in other words, how many investors do they have that are currently using the site?
- What is the average loan portfolio size?
- What security measures does it have?
- What investor protection does it contain? (Buyback Guarantees)
- How is the platform’s financial performance?
A reputable platform will:
- Have been in business for more than 3 years
- Has funded more than €1M worth of loans
- Should have more than 10,000 (active) investors
- Be profitable
- Paid at least €500,000 to investors
These pointers are not exhaustive, but they are an excellent start to helping you pick the right investment platform that will help you reach your investment goals.
2. What are their customers saying?
Review sites are often accused of being manipulated with fake reviews. Yet, they are still a good indicator of obtaining some background information.
If the reviews all have 5 stars, then this is suspicious. Having 1* reviews need better scrutiny. Most platforms will be between the 3-5* place. Suppose they are on independent customer review portals like Moneycheck or Trustpilot. In that case, these responses are likely accurate and not fake.
If you’re not sure, a quick ‘Google’ will take you to customer forums like Reddit and Quora or more finance-related forums where you can read other customer responses.
As with any reviews, take it with a pinch of salt!
3. The expertise of the lending team
How much investment and credit experience does the platform’s investment team have? How long have they been working within crowdfunding finance?
A team with strong financial expertise are better placed to make prudent decisions when originating and managing loans.
They will also be able to identify loans better to avoid.
Due diligence checks include:
- How do they assess a platform’s ‘typical’ borrower or the Loan Originator? At Monestro, we only deal with reputable loan originators as the risk is less than a direct borrower.
- Underwriting. Does the site make its decisions based on profiling or traditional and conventional banking criteria?
- Is security valued? Does the investment platform have skin in the game? Do they invest in their loan portfolios too? Do they have a buyback guarantee?
- Default and recovery process. Is the platform clear about what happens should a loan default? How will investors get their funds should this occur?
4. Large availability of sustainable yields
Naturally, every investor wishes to have the highest returns and for a sustainable period.
So, how do you ensure this happens?
Well, higher returns mean higher risk, meaning higher volatility. Many sites offer very high returns, and whilst this is enticing, it rarely lasts long enough.
It is better to examine a site that may offer lower returns, yet the same returns are sustainable over a more extended period. Not only is this less risk to your capital. It aids in ensuring your alternative investment vehicle provides regular returns.
Making investments with the promise of high returns is one thing, is one thing, but offering safer, more sustainable yields is another entirely.
Ensure the P2P investment platform must provide you with enough investment opportunities – a more extensive selection of loans to invest in.
5. Ability to diversity your P2P investments
To mitigate risk, it’s recommended to diversify your loan portfolio. Spreading your investments into several alternative investments is a wise strategy.
It’s the same with P2P investments – a diversified portfolio is essential.
Diversifying means spreading your investments across several different types of loan investments. Thus, if one loan portfolio performs poorly, or worse, defaults, your risk exposure is reduced.
6. Transparent terms & conditions
When starting with P2P lending, you’ll always be asked to accept the platform’s terms and conditions.
We know what you’re thinking. Who reads these?
Well, sadly, most investors don’t.
But, it is critical before starting any P2P investing in any platform.
As an investor, you must understand the risks when evaluating loan investments and what you can and cannot do.
After all, would you still invest in a site that can change its General Terms without communicating with you first?
We didn’t think so…
Believe it or not, many terms and conditions have a clause stating that they can do just this and so could harm your investments.
We recommend reading our terms and conditions thoroughly. If you don’t wish to read the entire document, have a quick summary of our F&Q section.
Your aim should be to invest money on a P2P site that puts your financial interests first and protects you as an investor.
7. Able to withdraw your funds easily
If you are a novice investing in peer-to-peer loans, you must first gain trust in an investment platform.
You probably will check your investment account daily, ensuring that the funds are still there and performing.
This is entirely natural and, to begin with; we’d recommend you do this.
Eventually, you will become more comfortable with how your portfolio is performing and likely leave your investments alone to themselves.
However, it may be different for others and a signal that they do not feel comfortable with the platform or that P2P lending is not for them.
No matter whether you are a novice or veteran, we recommend you start investing on an investment platform that allows withdrawing your money if you decide that P2P lending isn’t for you.
Thus, ensure you have a site that allows you to withdraw within a reasonable timeframe, typically no more than 30 days, with no additional costs.
Your investments should be accessible when you need them, for whatever reason you choose.
8. User-friendly investment platform with the latest investment tools
All wish to make money; some prefer to leave their portfolios to work their investing magic. Others keep a closer watch on what is happening.
That’s why the best P2P investment platform should have an array of easy-to-use tools, automation and investor protection.
When looking for the best platforms, check for the following:
- Easy sign-up
- Fast verification
- Swift deposits
- Intuitive AutoInvest allows you to invest funds according to your criteria
- Buyback guarantee
- Automation tools
Regarding automation, here at Monestro, we recommend taking advantage of our automated investment options (known as AutoInvest) when you begin to invest.
This way, the platform does most of the investing whilst you can learn how it is done.
When you’re more comfortable with how P2P investing works and have finalised an investment strategy, you can start to invest with more manual customisation options (if you so choose).
Time-consuming but necessary
There are many lending platforms in the P2P market of varying quality, so although researching platforms can be time-consuming, in the long run, it is well worth the effort.
In summary, not all platforms are created equal; compare offerings across different platforms and choose the investment platform most closely aligned to your risk appetite.
*Warning: nothing in this article should be construed as advice. Your capital is at risk.