8-Step Guide: How To Lend Safely And Choose P2P Lending Platforms
P2P lending has a fantastic record in the UK with incredibly low bad debts over the past ten years. Most of the 130,000 individual lenders in the UK haven't lost a penny.
join them in earning money through peer-to-peer lending safely, you could get started on the right track by following these eight steps:
1. The very first thing you should do is glance at the About Us section and see the profiles. You want to see an awful lot relevant banking experience at credit assessment (or underwriting or “loan origination”) and ideally you'll want to see credit- or risk-modelling specialists as well. Use other resources, too, such as 4thWay, to learn about the people behind the P2P businesses, and investigate those people more deeply if you have time.
2. You want to see that the P2P lending website focuses on either very high quality borrowers or on fantastic security, which means low loan-to-values for example, or low historical losses that are easily covered by interest. Articles and guides on 4thWay give you practical tips and guidance on what makes a high-quality borrower or fantastic security, and what you should look for.
3. The P2P lending website should be transparent about its statistics, particularly about bad debts, showing a decent enough history that you can make a judgement on it.
4. You want to make sure you're getting a decent premium over interest rates in savings accounts and cash ISAs.
5. Establish how easy is it to spread your risk across lots of loans. You have to spread your money across several P2P lending websites and 100-200 loans if you’re going for low-risk loans, and more if you’re taking bigger risks.
6. Be prepared to lend your money and re-lend your repayments for five years, even if a recession occurs during the period. If you try to withdraw your loans during a recession you might only be able to do so by accepting back less than you lent out.
7. Then look at nice extras such as whether the P2P lending website has pots of money (a reserve fund or provision fund) set aside to pay expected bad debts or insurance to cover bad debts. You need to know that these will not always cover all losses. Sometimes they will be depleted and this will lower your returns. If losses are very substantial, you could still lose money.
8. Keep tabs on the P2P lending websites to ensure that they are not reducing their standards too far or that interest rates haven’t sunk too low to cover the risks involved. 4thWay ® helps with this; we have an alerts service that tracks over a dozen indicators of risks. Sign up to our newsletter below!
Go to our Learn page for more getting-started guides.