P2P (Peer-To-Peer) Lending is becoming an increasingly popular investment choice with retail investors. This is not surprising, as investing in P2P loans provides an opportunity to earn market-beating yields in the 8%+ range. Some P2P lending platforms have additional safety nets build in to minimise downside risk.
What is P2P Lending? Well, when you invest in a loan you are essentially buying claim rights against a borrower, based on the assignment agreement. These loans can be anything from car loans to personal loans. The loans can both be secured or unsecured. Many of the P2P Lending platforms provide a loan market place, which source their loans through an array of loan originators.
Some points to consider when considering investing in P2P lending:
- This is the ideal industry to take advantage of auto/robo trading techniques. Spread your eggs over many different loans by making use of automated rebalancing tools. This will help you reduce your risk and provide you with more stable returns.
- See whether the P2P Lending platform provides a buy back guarantee. A buy back guarantee obliges the loan originator to buy back any loan that is over 60 days in default, at the nominal value of the outstanding principal, plus accrued interest income.
- Only work with P2P platform who properly and actively vet their loan originators. Solid underwriting is key!
- Make sure the loan originators have skin-in-the-game.
There are many P2P Lenders out there, such as Mintos, Grupeer and Fast Invevest. In my view Mintos is one of the best P2P platforms to invest through, especially if you are a beginner. Mintos is easy to use, most of the loans come with a buyback guarantee, and they continuously seem to diversify into additional countries and with additional loan originators. You can take my word for it, or check out all the P2P platforms and associated bloggers and comparison websites over here.
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