Eager to get started with P2P lending and join the ranks of highly-effective investors? Get these seven questions right, and you’re halfway there.

Clarify your needs: what aspects do you care about most?

As a soon-to-be investor, you are in the position of power. Before diving head-first into research, take a moment to define what aspects make a peer-to-peer platform an excellent choice for you. If you don’t fully understand your own needs, you may end up with a provider that simply cannot deliver a satisfactory service. Having a list of features and services that are must-haves for you, will make the selection process faster and more refined.

To get ideas rolling, here are a few aspects you might want to consider:

Ease of use of a P2P website: can you find an extensive list of FAQs and a robust knowledge base to help you answer any questions you might have without contacting customer support? Having a quick and easy access to helpful material will make your decision-making more efficient.

Comparison with other shortlisted platforms: the two key factors you need to think about is the Minimum Interest Rate and The Average Loan Term. Once you have this answered for yourself, comparing different platforms will be simple and fast.

Your risk profile: understanding your risk profile will help you choose the right investment options and ensure you’re not putting your capital at more risk than you can handle. This means thinking about the types of loans you want to invest, the strength of the BuyBack Guarantee that a provider is offering, the level of risk you can take, loan to value rates, and your Provision Fund.

How much money can you invest? One of the most important questions on the list. Think about the minimum amount of investment per loan and the level of diversification, whether geographically or the loan type and borrower profile on the platform.

How much time can you dedicate to managing your investments? Depending on the amount of time you have on your hands, you’ll be looking at whether a provider has the auto invest functionality and how time-intensive the manual investing process is.

Remember, if you don’t know where you’re going, any road will get you there.

Check the experience and strength of a platform

Gathering a list of reputable P2P providers with a good track record and a community of happy investors is a crucial step in your initial research process. There are dozens of new P2P websites popping up, so it’s imperative to assess the legitimacy of a platform before you sign up with them.

First of all, you need to check how compliant the platform is. All platforms need a regulatory license and must comply with the FCA’s (Financial Conduct Authority) regulations. If it’s a new business, assess whether they have a parent company that supports its growth and ensures financial stability and can inject funds or human resources when required.

Last but not least, take a good look at the provider’s management team and advisory board. You want a seasoned senior management team with the right experience and vision. With industry knowledge comes connections and strategic partnerships that typically result in healthy loans and a network of high-quality borrowers.

Review feedback: what are their customers saying?

It is only good practice to review other customers’ feedback before you partner with a P2P provider. Many platforms use an independent, third-party feedback aggregator, such as Feefo or Trustpilot, to provide visitors with up-to-date, unbiased reviews of their services. Be sure to take a look at customer reviews as well as the company’s response. It’s entirely normal for any business to have one or two complaints, but if you notice that the company is unresponsive or deals with complaints in an unprofessional manner, take it as a red flag.

If the company is relatively new or has just entered your country’s market, you won’t find a ton of reviews. Instead of solely relying on the big review platforms like the ones mentioned above, try Googling the company’s name and see what results your search brings up. It’s possible that other investors have asked the same question on Quora, in an online forum or an online group and you could immediately dip into those insights without moving a finger.

Ensure your money will be safe

The safety of the platform and, therefore, your money is arguably the most essential element to consider when investing in consumer loans. A company that has legitimate security measures in place and complies with the strict FCA’s regulations should give you confidence in placing your capital with them.

If for example, a P2P provider does not require you to verify your identity before making the first investment, you should undoubtedly question their security processes. There are stringent EU regulations, such as anti-money laundering (AML) procedures, that require identity verification before a customer can engage with a financial service provider.

Since your capital is not covered by the Financial Services Compensation Scheme (FSCS) or the EU Deposit Guarantee Scheme, you should pay attention to the safety measures that a chosen P2P lending platform is using to counter the risks. These measures can range from having a reserve fund to cover any defaults to offering insurance or default guarantee. Besides the safety measures, you should also check the actual default rates of the platform versus the industry averages. This will give you a good indication of how robust is the provider’s risk management strategy as well as shed some light on the creditworthiness of its borrowers.

Look at loan types: what type of lending do you want to get involved in?

If we take a high-level overview of the market, there are four primary segments of P2P lending: consumer loans, small business loans, real estate loans, and student loans. Usually, you will find that different P2P providers focus on different types of loans and have a clearly defined audience and target market. Deciding what types of loans you want to invest in will largely determine which P2P platforms are right for you.

Let’s have a quick look at the four prime types of loans and the advantages they offer.

Consumer loans. Consumer loans are by far the most popular segment of the P2P lending market. This segment spans various personal loan requests - everything from medical expenses, to credit card and debt consolidation, to wedding costs. Due to the ease of access to P2P consumer loans, this segment is rapidly growing in popularity. The loans are generally smaller, but they present a higher risk and, at the same time, better returns for investors.  

Small business loans. Since the credit crunch in 2008, traditional banks have been reluctant to lend money to SMEs, due to their inability to guarantee repayment. Smaller size loans are not profitable for big banks with huge overheads and regulatory burden. Since 2015, Crowdfunding platforms and peer-to-peer lending marketplaces have been growing in popularity and successfully filling in the void. However, investors thinking about putting their money into small business loans should bear in mind that there are many types of SMEs out there as well as different types of loans required. Checking the creditworthiness of the business and getting some security measures in place is advisable.

Real estate loans. P2P mortgage loans is a growing trend. For younger borrowers, who are not as loyal to traditional banks as their parents might have been, peer-to-peer lending is an attractive alternative to the bureaucratic hassle that goes along with banks. For investors, it’s a decent investment, provided they’re prepared to invest long-term.

Student loans. P2P student loans is a huge thing in the US, where student loan debt accounts for the second largest amount of debt in the country. While investing in P2P student loans is very similar to investing in consumer loans, the returns tend to be lower on average.

How much control will you have over your investment?

It’s critical for a soon-to-be investor to scrutinise the P2P provider’s rules on early money withdrawal. For example, Fast Invest offers a BuyBack Guarantee, which is the company’s promise to buy back your investment in one day in case you need to access your money immediately. However, investors must be mindful and check what options are on the table, as other P2P platforms require lenders to put their loans on sale and wait for someone to buy them to recover the money.

Besides that, you will also want to review the rules of accessing your earnings. Some platforms, including Fast Invest, allow investors to get a regular monthly income from their investment, while others have you wait until the end of the repayment period to reap the benefits.  

What is the flagship feature of the platform?

A great way to evaluate whether you found the right P2P platform is by looking at their flagship feature. What is their unique selling point? The feature they’re most proud of and use to differentiate themselves from other providers on the market? This will give you a quick but real insight into where their priorities lie and whether it’s a suitable platform for your investment plans.

At Fast Invest, we pride ourselves on having the lowest entry point. Anyone can start investing from as little as 1 Euro. Putting no limitations on how much someone should invest, we’re ensuring our customers experience no stress, no rush and minimal risk.