Crowdlending 101

What is this thing called crowdlending?

Crowdlending (or peer-to-peer lending) is a trending investment modality 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 profit can I expect?

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 platforms?

Well, this quite depends on your investor profile and your risk tolerance.
Check the Platforms comparison and decide by yourself. Here is a little summary:

  • Envestio: high-returns (up to 21%) on innovative projects. 90% of buyback guarantee.
  • Fast Invest: short-term consumer loans with an outstanding buyback guarantee (which applies on a payment delay greater than 3 days!).
  • 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.
  • Viainvest: long track history (since 2008). 30-day buyback guarantee and good loan flow.
  • Bondora: high-returns and easy-to-use secondary market but no buyback guarantee available.

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).

What are the risks?

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 investment 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.

Transferring money

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.