Many crowdlending and peer to peer lending investors report returns on their investments of more than 10%. This is not very surprising since most platforms advertise that they have returns of between 6 and 16% and some even higher. A mixed-loan portfolio on the various platforms can easily become a double-digit return.
Build your own portfolio
On the various crowdlending and peer to peer platforms, you have more control over the specific investments than you have with many other investment alternatives. You can choose loans based on loan types, loan term, credit score, interest requirements and how much you want to invest in each loan. That way you can control the various variables that exist for your individual investments. There is even on almost all platforms an online sevice called ”auto Invest” which completely automates all these options for you. You can go for the the best peer-to-peer platform reviews there.
You do not have to finance the entire loan
Here we come back to you can decide for yourself how much you want to invest in each loan. Since you can buy loan shares down to 10 Euro, an investment of 1000 Euro can be spread over 100 loans, allowing you to diversify its investment with even very small investments and thus reduce its risk. But the news about crowdlending and peer to peer lending is not exclusively positive.
The risk of crowdlending and peer to peer lending
Whenever you see the opportunity to earn higher than average return on your investments, it should be self-evident that there is also a risk involved. Crowdlending and peer to peer lending work the same way. Here are some of the considerations.
Loans can be unsecured and some are not repaid
Crowdlending and peer to peer lending investments are in private and corporate loans, which means there is a risk that they will not be paid off. The risk is greater with unsecured private loans, and you may risk losing your investment completely on a single investment. (That is why it is important to diversify your investment so that you have diversified your portfolio into hundreds of loans so that a single bad loan does not ruin the investment.) With P2P review on Grupeer you can find the best bit now.
No deposit guarantee on your investment
Contrary to banks’ investments, crowdlending and peer to peer platforms are not covered by a deposit guarantee. This means that if a platform fails, then your money is not covered, even though they typically have an agreement with other institutions that take over the loan portfolio, thereby continuing the payments if this happens.
When you buy a bond or use a deposit account in the bank, you can invest a certain amount and get interest paid while your investment is outstanding. When the period is over, you get your initial investment back to yourself. But that’s not the case with crowdlending and peer to peer lending. Since you invest in loans and these loans are gradually repaid over the loan period, the investment is reduced to 0 kroner at the end of the loan period. If you do not reinvest the payments and instead spend the money, then you have no invested capital from the loan when done. This is important to note, and as some new crowdlending and peer to peer investors may forget.