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What is this thing called Crowdlending?
Crowdlending (or peer to peer lending) is a trending fintech investment where investors lend money to companies or individuals and earn interest when the money is paid back.
It has become one of the investments that offer a better risk-profit ratio at the moment. It’s also relatively simple and accessible for many people, it doesn’t require high capital to start, and it’s also not directly correlated with the markets, unlike other stocks investments. In short, crowdlending it’s a great way to generate passive income.
What is the difference between Crowdlending vs Crowdfunding?
Well, Crowdfunding is just the other side of the coin. It’s a way of raising finance loans whether for business projects, or personal loans, real estate, etc. by asking a large number of investors to contribute. This task is performed by the crowdlending platforms which act as an intermediary by connecting the borrowers with thousands of potential funders (aka investors like you and I).
What profit can I expect in Peer to Peer Lending?
The estimated profit depends on many factors, not only on the interest rate, but also the platform, if there is a buyback guarantee, the default/delay rate, the duration of the loan, etc.
Let’s say that you can expect an annual return from 7% to 16% in most of the European crowdlending platforms. Use the Portfolio Estimator to see how your portfolio would perform over the years.
Moreover, a great point about crowdlending is that commonly there are no fees applied. However, you should do your own research about the taxation of your own country, as the laws might differ from each country. Usually, you just will be taxed by the profit from interests, not by all your portfolio balance.
What are the best P2P Lending platforms?
This quite depends on your investor profile and your risk tolerance. We need to have in mind the Magic Triangle before investing a single coin.
The Magic Triangle refers to the three cornerstones of any financial investment: profitability, security and liquidity. As a rule of thumb, a good financial investment offers high profitability, security (meaning freedom from major risks) and liquidity (meaning accessibility of money and avoiding of cash drag).
Check the platforms comparison to find the most-known p2p sites out there. Anyway, this is my personal Top 5:
- FastInvest: start investing with only 1€ on personal and small business projects. All loans have a 3 day buyback guarantee! Blimey!
- Wisefund: high-returns (up to 20%) on innovative projects. 90% of buyback guarantee.
- Grupeer: secured business loans and some real estate ones. User friendly platform.
- Mintos: nice liquidity, several loan originators and great transparency level.
- Estateguru: european leader in secured real estate loans.
What are the risks of this fintech investment?
Every investment entails a certain amount of risk (there is no such thing as free lunch). Each platform is different and has its specific characteristics and conditions in this regard. That’s why I’ve written an in-depth analysis of each of them in the reviews section.
In a nutshell, you might lose your money in the following scenarios:
- The borrower defaults and the loan has no buyback guarantee or secured collateral.
- The loan originator defaults.
- The crowdlending platform itself defaults.
Note that we can minimise those risks by diversifying our portfolios. Note that you can also diversify with another kind of investments you should take a look at Club de Inversión y Ahorro (Spanish quality content).
When transferring money online to a platform, I strongly recommend you to use a service like TransferWise. You will save up to 8x in fees compared to conventional bank’s transactions (wow!) and also integrates a currency exchange.
Disclaimer: Nothing written here should be considered advice or guidance for investment decisions. If uncertain, always consult a professional investment advisor and/or accountant. Some of the buttons above contain affiliate links, meaning that at no additional cost to you I will earn when commission if you make a investment.