Looking to lend money, either for short term or long term ? Do you focus on investment safety, or are you willing to take a bit more risk in exchange for improved returns ? Regardless of your investment style, Alternative Investments will help you distinguish between the myriad of existing P2P lending websites, and help you select the most adapted place to lend your money.
This website will focus mainly on companies established on East-European countries (Estonia, Latvia…) as they are very competitive. However there are also many other such firms in the USA or in the UK, the most famous being Lending Club
How to invest through P2P lending websites : a step-by-step guide
It’s surprisingly easy to invest in P2P loans ! Here’s an overview of the process
Opening an account
First, you need to create an account. You’ll provide basic informations about yourself : name, date of birth, address. A few websites ask for a scan of your ID; it will be required anyway once you want to withdraw money so it can be useful to have one at hand.
Funding your account
Next step is to deposit funds via a SEPA transfer. If you use an online bank it’s really a matter of seconds : just copy-paste the bank informations provided by the website. You may want to save them for later use, in case you want to deposit more funds ! Just be careful to use the right instructions for the transfer (“reference text”), as they allow the P2P company to sort out the funds deposited by the different clients. The funds will usually be available for investing after 2-3 days.
Some companies allow credit-card deposit (like Bondora) but it’s not very common, and I would basically advise against it as it will reduce your credit card’s monthly limits.
Investing considerations regarding P2P lending
Before you invest, one important thing to consider is the kind of loans you’ll invest in. They can be either secured or unsecured, sometimes partially secured.
Secured loans provide a buyback option. It means that if the borrower doesn’t reimburse for a period of time (usually 1 or 2 months), the agreement will be terminated and the company will usually reimburse you the outstanding capital and unpaid accrued interest. Loans with buyback currently offer an interest rate up to 12%, offering a reasonable return rate.
Unsecured loans may offer much higher returns, but if the borrower defaults, you’ll have to take the loss. The P2P lending company will try to recover some of it through legal actions, but it will take some time and results are uncertain.
Finally, you may have a partial buyback, reimbursing part of the outstanding principal.
Some P2P lending firms only offer secured loans (ViaInvest, Swaper, Grupeer); a few only offer unsecured ones (Bondora). But most will actually let you invest in both of them (Mintos, Twino, Omaraha).
For example in the case of Twino, you can choose between :
- “PG”, which actually guarantees the payment according to the schedule, even if the borrower doesn’t pay
- three ratings of unsecured loans
Once the funds are available for investing, you usually can choose between manual and automatic investing. Both modes allow you to specify which loans criteria to apply. The most common ones are country, interest rate, duration, but some P2P lending companies offer extreme customization of your investing profile. Manual investing will only display the matching loans, and you’ll be able to select the ones you want to invest in. Here’s a sample of Mintos manual invest screen, which features an impressive range of available filters :
Auto-invest will automatically invest in loans matching these criteria, provided they’re available. Here’s what it looks like at ViaInvest :
In most cases I choose to go the automatic way, checking the settings from time to time as the interest rates may change.
Watching your account grow and withdrawing funds
My favorite part 🙂 As the principal and interests are reimbursed by the borrowers, your account will grow. If you’re using auto-invest and chose to reinvest the profits, the system will automatically invest in new loans.
If you want to withdraw funds, you’ll need to upload a copy of your ID. Withdrawals are in my experience just as quick as fundings