7 Top Tips for Investing in P2P Lending

Peer to peer lending is a fairly new kid on the block, but one that’s making its presence clearly known. The idea behind peer to peer lending is that individuals provide unsecured loans to those looking for finance, a move that has tempting advantages (ROI-wise) on traditional bank or building society savings accounts. The P2P industry is growing at a rapid rate, driven by the awkward difficulties of obtaining loans from banks these days, as well as the general loss of faith in the established banking industry since the 2008 crash.

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Whilst, of course, not without risk, peer to peer lending has some real advantages to offer. With peer to peer secured loans through The House Crowd, short term investments with a fixed return give investors the confidence of knowing what to expect. That’s not to say, however, that you can just rush into P2P lending willy-nilly. You do need to know what you’re doing in order to make the right kind of investments for your needs.

That’s why we’ve put together these handy tips, to help you on your way to getting started with peer to peer investments in a smart and informed way!

  1. Diversify

Any financial advisor you speak to will tell you how important it is to have a fully diverse portfolio of investments. The same goes for peer-to-peer lending.

We recommend spreading your risk by ensuring you don’t lend out any more than 1% of your portfolio to one single business. With peer-to-peer lending, you should further diversify by spreading investments across multiple platforms.

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This is good advice when it comes to maximising return, and giving you the perspective to ascertain which loans are generating the best yields. Furthermore, if one platform you’re using suddenly experiences issues, or – worse still – vanishes altogether, then by having spread your risk across multiple peer to peer lending platforms, you’ll be in a far less vulnerable position.

The more you diversify, the less likely you’ll be to lose money on your investment.

  1. Research

Knowledge is power, and when it concerns your financial investments, it’s no less than crucial. There’s also no excuse for not being well-informed, especially when there is so much information out there on the web.

Read the reviews on each platform you consider before getting involved. Examine the track records of various platforms, get advice from other investors, keep notes, and compare and contrast before you dive in. It’s important to remember that not all lending platforms are the same, and each have their own practices, and procedures for screening borrowers, as well as handling late payments and defaults.

Here are some handy questions you might like to ask yourself:

  • What percentage of loans on this platform fall into default?
  • How are borrowers screened and evaluated?
  • What average returns have investors produced in the past?
  • What is the process for handling late payments?

The better informed you are, the more confident you’ll feel, and the more equipped you’ll be to make the right decisions for your money.

  1. Re-Invest

Don’t simply allow your returns to sit idle within the platform. This is a good way to lose out on potential income and lower your return on investment: uninvested cash earns no interest. Take advantage of the compounding yields to be gained by continual reinvestment of returns into new loans.

  1. Keep Involved

The peer-to-peer lending market is growing and evolving all the time. As such, it’s key to stay up to date with developments within the industry. Acquaint yourself with new platforms as they emerge, changes to legislation and about the loans themselves.

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Remember that peer to peer lending is not a passive exercise. You need to put the time in, in order to get anything out.

Some of the loans you’ve already made could be downgraded or even default, and you need to be fully aware whenever something like this happens. Keep abreast of new loan offers as they come up. Again, knowledge is power… a fact we cannot emphasise enough.

  1. Take it Slow

If you’re just starting out with P2P lending, don’t rush in. Do all that reading and research, but remember that the best way to learn is to actually begin. Start with smaller amounts, tentatively monitoring how these small investments perform. This will act as a kind of practice run, and give you the chance to understand the lending platform you’re using.

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As with anything in life, taking on too much too soon is likely to leave you feeling overwhelmed, and leave you prone to making mistakes, which could be costly.

  1. Know Your Risk Tolerance

We all have one. So, what’s yours?

Higher risk tends to equate to higher reward, but if you’re not comfortable with that level of risk, take a step back to a risk profile that fits your tolerance better. It’s important to carefully consider how much risk you’re prepared to take, and only invest accordingly.

  1. Be Prepared

A strong emergency fund is absolutely vital in order to cover your own personal expenses. Your investment funds should be comprised only of any money you have that is surplus to your daily needs and your emergency fund. Remember that you will not be able to withdraw money from your P2P platform on a whim.

These are just some of the most important factors to consider before you get cracking with P2P investment. You should, as we’ve said above, keep up to date and well-informed on the industry, and monitor your investments closely. It may feel a bit ‘hands-off’, but investments of this kind are certainly not a passive income source. The more you put in, attention-wise, the more you stand to get out.

You can always find out more about investing with The House Crowd by checking out all our guides and articles right here on our website. And if you’ve still got questions, our team is on hand to help!

Happy investing!

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The Latest P2P News – 18/5/16

P2P News – All The Latest Updates

Hi guys and welcome to our very first P2P news blog, just like our property and crowdfunding news blogs we will be giving you a quick snapshot featuring five top stories. Today we look at an array of interesting topics from UK lenders say P2P is safe to looking at some key takeaways from the industry so far.


P2P is ‘Safe’, Say UK Lenders

P2P News P2P Lending


UK P2P lenders have reassured investors that they are safe despite the calls for tighter regulations.

The P2P industry — in a nutshell involves matching borrowers directly with lenders online — was thrown into the spotlight last week when a high-profile US lender’s chief executive resigned.

Lending Club’s founder Renaud Laplanche, stepped down from his position following an internal probe over allegedly mis-sold loans according to the FT.

As a result UK lenders were keen to distance themselves from the P2P company and also pointed out that regulations involving lenders in the UK differs from the regulations for their U.S. counterparts.

The big difference between the UK and The U.S. is that the UK regulations were written specifically for P2P lenders. In contrast, U.S. lenders follow rules devised before peer-to-peer lending existed as FT’s Aime Williams points out in her article (link below).

P2P in the UK is also known for being very transparent, the industry body for UK p2p lenders, the P2PFA, noted that its members publish their loan books.

In addition P2PFA members follow a number of agreements to enhance transparency levels, including publishing bad debt rates and five years of credit performance, as well as a returns performance and submitting full loan books.

However, some have mentioned that things should go further. For example, Chief executive of AltFi Data, Rupert Taylor told the FT : “People recognise the benefits of transparency, but there’s more that can be done.”

You can read more on this topic here.


China : The Red Dragon Reins in P2P Lending

P2P News China

China is tightening its grip on a surge of peer-to-peer (P2P) lending amid a string of mismanagement and fraud in the lightly regulated sector. (The Straits Times, May, 2016)

The point of doing this is to limit the potential instability these lenders might pose to the country’s wider economy and society.

In recent years there has been a surge in P2P lenders in China, mainly from websites that connect borrowers to lenders and according to Chinese data company Wind Information, there were 2,600 platforms at the end of last year.

Lending hit over 980 billion yuan last year, soaring from 253 billion yuan in 2014, making China’s P2P market the largest in the world.


Lendix Raises $13.5 million To Become Leading European P2P Platform

P2P News Lendix

The French startup has raised $13.5 million (€12 million) and now wants to become one of the leading European P2P lending platforms.

Lendix was launched last year and in it’s first year has managed €20 million worth of medium-term business loans. According to Tech Crunch, Lendix manages loans for small and medium companies for 3 to 6 years with annual returns between 4 and 9 percent for the lenders.

Lendix is going to expand to other European countries now they have taken the French market by storm, they plan to get involved with the Spanish and Italian markets respectively in the coming months. For each European expansion, the French startup has to work on getting a license to operate on these new markets. In addition, Rules can be slightly different as well. It’s a long and bureaucratic process, however, it is a good barrier to entry for foreign competitors.

You can read more about Lendix here.

Image source : Lendix


Why Banks Should Be Offering More P2P & Bitcoin Services For SMEs

P2P News Banks

Banks are facing “stiff competition” from fintechs, and should be offering more “value-added products”, such as peer-to-peer lending, bitcoin and cloud services according to Accenture’s SME Banking 2020 report.

They found there is a clear appetite among many SMEs for these value-added services and this currently represents a missed opportunity. Their data indicated that banks could be generating £1.6bn a year more in revenue from these services, representing potentially £8.5bn by 2020.

Gareth Wilson, Accenture banking practice lead for the UK and Ireland told City A.M. : “SMEs want banks to be more relevant and provide a wider range of business services”.

Moreover, he stressed that banks need to recognise and seize this opportunity. Unless they do, SMEs may take their business elsewhere and look for alternatives.


P2P Takeaways

P2P News

Lastly, here are some key P2P takeaways :

  • The P2P lending industry is seeing significant growth, especially in developed countries with strong financial markets. P2P lenders in the US generated $6.6 billion in loans last year, up 128%.
  • Europe is the next big market for P2P lending: The alternative finance market in Europe reached nearly €3 billion ($3.9 billion) in 2014, a 144% jump, and small-business P2P loan volume in France grew almost 4,000% last year, to reach €8.2 million ($10.6 million).
  • The US has one of the largest P2P lending markets in the world by loan volume, but the UK’s is 72% larger on a per capita basis. Low consumer confidence in banks (even before the financial crisis), a high degree of comfort with online platforms, and a positive regulatory environment have all helped nurture the UK’s P2P lending market.

Stats taken from Tech Insider.

What Are Your Thoughts?

Which of our chosen P2P stories has interested you the most? We would love to hear from you, feel free to leave us a comment on our Facebook and Google Plus pages. If you prefer to tweet us, tweet @TheHouseCrowd.

In the meantime if you want to know more about Property Crowdfunding do register for our Information Pack which will tell you all about it. 

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