So many P2P lending companies, so little time 🙂
Although I wrote individual review for the ones I use, choosing where to invest your money may still an overwhelming task. This article aims at helping you to select which companies to invest through, depending on your investor profile.
At the bottom of this article, I’ll also provide you with a useful tool to guide you in your investment. I summarize the current state of P2P lending offers, condensed into a handy table you can easily search. Give it a try !
Criteria used to differentiate P2P lending companies
I already covered some of them in my introduction to P2P lending. Here I’ll enter into more details !
Buyback or not ?
That’s the first consideration. A buyback mechanism means that if the borrower fails to reimburse in a timely fashion, the P2P lending company (or the originator) will purchase back the delinquent loan. The delays is usually 30 days, sometimes 60.
In addition to this standard buyback mechanism, there are two variations :
- Twino’s “Payment guarantee”, which guarantees the payment of interests on time
- Omaraha’s partial buyback, reimbursing 60% or more of the outstanding capital
Of course, loans covered by a buyback options are those considered as safest, and thus they offer a lower interest rate.
Common criteria for secured and unsecured loans
With the buyback option, this is probably one of the most important factors. Some P2P lending companies are specialized in short-term loans, while other offer loans for a duration as long as 5 years. Interest rate is usually correlated with the duration : the longer the duration, the higher the interest rate – although for long-term loans, it actually depends on the platform –
This aspect is related to the investment duration.You may be okay with having your funds locked for 1 or 3 months, but what about longer periods ? You may find yourself in dire need of these funds. Some P2P lending companies offer a secondary market option, allowing you to put your investments for sale. You’ll of course have to sell them for a discount, and sometimes pay a small fee, so it should be viewed at a last resort measure !
Type of loan offered by P2P lending companies
Does the company provide loans for individuals or professionals ?
The former may be sub-divided into payday loans, car loans, home improvement loans… The loan kind will mostly influence its amount, which will condition its duration, which will in turn affect the interest rate. Also, loans used to buy a car may provide a better safety, at the cost of a lower interest rate : the car is used as a collateral, and may be resold if the borrower defaults (the same holds true when buying a house).
Loans targeting professionals may act look similar to those for individuals, but you’ll also find very specific business models, like invoice finance. In this case, the loan is used to provide advance payment of an invoice which will be paid later (usually 1-2 months later).
Yet another kind of investment is real estate crowdfunding. Large amounts are usually involved, and the returns may be more uncertain, as is any real estate-related investment. Moreover, these investments may not pay interests monthly, but rather once the project is completed. That’s another point to keep in mind if you’re looking for a regular income source.
If you choose to invest in secured loans, the platform usually lets you specify the interest rate range you’re interested in, for a given duration. Obviously, there will be more competition for loans with higher interest rate, while the borrowers will want to pay less; as a result, you may not be able to invest all of your funds at the highest interest rate available.
For unsecured loans, the offered interest rate is also dependent on two other criteria, listed below.
Auto-invest availability and required time to manage portfolio
Depending on how time much you want to spend managing your P2P loans portfolio, you may be more or less limited in your investment opportunities.
The two extreme situations are Omaraha and DoFinance. Omaraha requires a lot of time to master the peculiar website ergonomics, and later to fine-tune your investment preferences. With DoFinance, you choose your investment duration (which influences the expected return) and then you’re all done for several months !
One special case is real-estate crowdfunding : the investment opportunities often have particular structures and are much less standard than P2P loans for individuals. As a result, manual investing will be your only choice, and they may require more time to study the investment deals.
In most other P2P lending websites, the availability of auto-invest will save you a lot of time. However, I strongly advise you to check the result of your investment choices regularly. You will also have to update the auto-invest terms when new issuers are added, for example.
If you choose to invest manually, the required time will depend a lot on the duration of the loans. For example, using Grupeer, the large loans amount and long duration lead to a very hands-off portfolio management (I actually miss a feature notifying me once there are available funds !).
Additional criteria for unsecured loans
Borrower’s credit rating
So, you choose to invest in unsecured loans. Still, it may not be such a risky path; you actually can control how much risk you’re willing to take. Do you want as few defaults as possible, resulting in a low interest rate ? Or are you willing to take more risk, with borrowers having a less appealing rating, but ready to pay more interest ? That’s obviously a hard decision to make. Looking at the platform statistics should help you in your decision, as the rating themselves are rather subjective; the default rate itself for each rating is much more meaningful.
This is not a criteria by itself, but it influences both the recovery rate and the offered interest rate. Usually the platforms have high recovery rates in their home country, but may not be as efficient abroad. Also, the interest rate that borrowers are willing to pay highly depends on the local banking offering.
Recommended P2P lending companies by profile
Very short term (3 months or less)
Investing in Robo.cash is a no-brainer, with a crazy 14% interest rate for payday loans, for a duration of one month. It’s hard to beat this !
DoFinance currently offers 8% interest rate for very short-term loans, and it’s very straightforward to invest with this platform.
Mintos is another possible choice. Although you’ll have more parameters to configure, thanks to the user-friendly interface, setting up the auto-invest feature will require very little work.
Short term (1 year or less)
My favorite company for this profile is Grupeer. Interest rate is usually around 14% with durations below one year. Note that they don’t provide a secondary market, so your money will be unavailable for the whole investment duration.
Another easy option is DoFinance, offering 12% for 6 month durations. You’ll be able to interrupt your investment before its term, but depending on the interest rate and duration, you may have to give up the interests ! For details, check their FAQ, section “Returns / When Can I Withdraw My Money?”
The drawback of these two sites is that they’re rather low profile, so if you want more safety, you can go for Mintos. Just as with shorter durations, it will require a bit more work, though.
Longer term (more than 1 year)
In the case of secured loans, increasing the duration won’t result in a large interest rate increase. Mintos offers 14% interest rate for 5 years loans, which is basically equivalent to Grupeer‘s offer. It’s honestly hard to choose between these two companies : Grupeer requires very little time, while Mintos offers a huge array of originators.
My first choice is Omaraha, although their website is rather hard to use ! They offer a wide range of durations and rates, for various credit ratings. Also, the company has been in business for a long time, providing some additional sense of security over newcomers.
For those willing to invest for one year and more, and are ready to withstand some uncertainty regarding future returns, real estate crowdfunding is a great opportunity. I highly appreciate both BulkEstate and CrowdEstate; the latter offers more opportunities and the investment projects are more detailed.
Bondora would be my third choice; it’s much easier to use than Omaraha but the actual XIRR is much lower. However, it offers a secondary market, which may be useful.
Very large portfolio size
Lucky you 🙂 In this case, you’ll obviously want to invest in a platform that offers a large volume of loans; Mintos is probably the way to go. Another opportunity is Grupeer‘s current development project, which has around 170k€ financing needed as of September 2017, at a 13% interest rate (they sometimes offer a 1.5% additional cashback, check it out !). Their loans deals are also currently worth considering, with two large loans of 100 000€ each, offering 13.5% and 14%. CrowdEstate provides the opportunity to invest large amounts with great returns; however, don’t forget to factor in the volatility of real estate valuation ! As a last resort, Omaraha‘s secured loans may be a good choice too, although they’re not always available and offer a meager 9% interest rate for one year.
Interactive table for P2P lending companies comparison
Here’s a table summing up the offers by the P2P lending companies reviewed by Alternative Investments. You may filter by company name, maximal loan duration, minimal interest rate, buyback kind, and presence of a secondary market.
The ‘last update’ column indicates the last date I’ve checked this offer. of course, I strongly encourage you to also do your own research, and also notify me about any change that occurred since the last update !
Note that you may click on the ‘website’ column to visit the company’s website, or on the ‘review’ icon to view the review on Alternative Investments.