How to choose a crowdlending platform
Earning interest on your money from a bank account is so 2008. Welcome to the post-Financial Crash age of crowdlending.
Ah, sweet passive income! — the concept of investing a sum of money, and sitting back while you reap the profits of that initial capital. Before 2008, most major financial institutions in Europe were able to offer savings accounts with interest rates in the region of 1.23% p.a.*, in exchange for a long-term cash commitment. Then the global banking crisis hit, and this model of earning interest became practically extinct overnight.
High interest accounts had offered a safe, low-risk returns, but when this was no longer possible, alternative investment opportunities offering a greater level of risk-and-reward began to emerge instead. With much of the world’s economy in debt or negative credit, it seemed like the only thing in no short supply was loans. The logical follow-on was a surge in crowdlending platforms that allowed people to invest in loans — blowing an investment sector that had previously been difficult for members of the public to access, wide open for all.
Usually hosted on a website or mobile app, crowdlending platforms allow ordinary people — with however much investment experience they may have — a chance to buy stake in loans as an investor, in exchange for a possible return of their money plus interest in the future. The premise is simple. Browse the list of loans that your marketplace of choice offers, choose a loan type, the amount to invest, the loan term, etc., then sit back while the money –hopefully– rolls in.
Choosing the right crowdlending platform
When it comes to a platform for investing in loans, selecting the right one might be just as much of an important step as the actual investments themselves. While it’s tempting to head straight to the platform claiming to offer loans with the highest returns, it makes more sense to consider any potential platform as somewhat of a ‘business partner’, since you’ll be relying on them through thick and thin.
Be cautious, and ask yourself the same questions that you would before going into business with someone — Can they be trusted? Do they respect compliancy? Are they backed with positive reviews? Reports of P2P platform closures in the mainstream media highlights just how important it is to pick the right platform for your investment. If the platform were to suddenly disappear, you could be faced with the long and complicated process of recovering your money through third-party services, so doing some advance research is a smart idea.
Not sure what to look out for? This guide lists the main things to consider before you put your money on the line.
10 things to look for in a crowdlending platform
1) Platform size
When it comes to sussing the integrity of a crowdlending platform, taking a look at the scale and duration of company operations is a good place to start. Chances are, platforms with the biggest number of investors and loans funded got to where they are from being successfully tried and tested by other investors. Some newer platforms might offer loans with tempting reward rates to lure you in, but without established credentials they also carry a greater risk of folding, or operating on an unvetted basis.
2) They do checks on borrowers and the companies bringing investment opportunities
When you use a crowdlending platform that offers many different investment opportunities, it can be hard to tell at first glance how legitimate the company bringing the loan or project to that marketplace actually is. Look for information on the platform about credit scoring, and choose a platform with established underwriting capabilities. Credible crowdlending platforms should pre-screen the loans and projects on their marketplace based on a range of criteria, so if the platform offers a ratings guide, it’s a good sign that these checks are in place. Likewise, if you’re investing in a business loan, make sure that the platform offers enough information about the company and details of the project itself to be able to make a well-informed decision.
3) Transparency
To be sure that a crowdlending platform really is who it says it is, look for evidence that they exist online. Any platform that had a full business operations would have a team of employees in roles ranging from marketing to legal (and everything in between), so finding information about the platform’s management team and employees on their website or through LinkedIn searches indicates that the platform has nothing to hide. Another plus is a platform that offers visibility around the circumstances of the loans themselves, which investors can consider before they make an investment, such as information about the borrower’s profile — whether they’re a business or an individual, or the reason for taking out the loan — and so on. It’s important to research the lending companies that a marketplace hosts on their platform. If the platform is directly providing the loans to borrowers themselves, don’t be afraid to ask how they’re able to do that.
4) A good track record
The old saying tells us, “It’s not about how much time you put in, it’s what you put into the time that matters.” From an investor’s standpoint, this means that even if a crowdlending platform claims to have been in operation longer than any of its competitors, it’s better to look at the success people have had using it during that time. For instance, how many customers saw positive returns on their investments? Do some research online and read reviews about other investors’ experiences. If the platform seems to play host to poor performance, this could be a sign of poorly-vetted financial partners.
5) Customer service
Sure, choosing a platform for investing in loans is a decision that’s more likely to be made based on criteria like the overall ease of use or a site’s credibility and performance statistics, but if something ever goes wrong or you need to ask a question, it’s good to know that your platform of choice places value on customer support, particularly if they can offer support in your own language.
6) Safety nets
Even if you’re absolutely certain you’ve picked the most trustworthy and reliable crowdlending platform, the investor still needs to choose their investments wisely! For extra peace of mind, some marketplaces offer buyback guarantees, provision funds, and secondary market selling options to let you leave early if you need to.
7) Accessibility
Being asked for a ‘minimum investment’ is normal when you make an investment in a loan… After all, crowdlending is about buying a stake! That being said, the minimum sum to let you participate shouldn’t be so large that only a millionaire could afford it. One advantage of making many, small investments is that it allows you to diversify your money across numerous loans, rather than pinning all your hopes on to one, high-stakes gamble. Some crowdlending platforms will let you invest with them for less than 10 euros, and you could pick up a secondary-market investment for even less, or make investments in multiple currencies. Less experienced investors may also want to look for a platform that offers an auto-invest function to make investments automatically on their behalf.
8) Diversification opportunities
The loans and business projects available for you to invest in are like snowflakes — no two are ever the same! As well as having different loan types to invest in, a larger total number of loans and projects altogether suggests an active crowdlending platform. Serious crowdlending platforms will offer plenty of opportunities to let investors create a balanced and well-diversified portfolio. That means, having the option to invest in loans of different types, or from different industries, loans with diverse terms and different risk levels to help you find the one you’re comfortable taking. They might even allow you to invest in loans from different countries and currencies, which gives experienced investors a chance to even diversify against country-level risks.
9) No hidden fees
You could be the luckiest investor in the world, but if you lose some of those hard-earned returns on avoidable fees, it can feel pretty annoying. Check the small print and fee information carefully with each crowdlending platform before you sign up, and watch out for fees on making investments, deposits and withdrawals, amongst other things
10) They do checks on investors
Finally, a strong indicator of a legitimate crowdlending platform is that you’ll be asked to verify your account with a form of ID during the sign up process, to click checkbox agreements around data protection, and agree to terms & conditions of use. Of course, you’ll also want to take a moment to carefully read all contracts and agreements before you click ‘agree’ or ‘invest’, just in case there’s a caveat that might affect the security of your investment. It’s worth noting that although extra checks against illegal practices like anti-money laundering can seem like a nuisance to investors, these are actually a great sign that the platform is operating above board.
…Simply put, discover Mintos.
Mintos is Europe’s leading loan investment marketplace. With a TrustPilot rating of ‘Excellent’, more than 240 000 customers have joined Mintos since 2015, investing almost €4.5 billion between them with an average annual returns rate of 11.9%.
Mintos at a glance
- Buyback guarantees on more than 95% of loans
- Auto-invest option to make automated investments on your behalf
- Risk rating profiles on all lending companies
- All lending companies required to keep “a skin in the game” share of their loans
- Unrivalled diversification options, including different ways to invest
- Invest from as little as €10, in more than 10 currencies
- No fees for signing up, making investments, deposits or withdrawals
- Secondary Market selling options to let you leave an investment early
- Investor support in 11 languages
Ready to get invested? Head over to Mintos.com to find out how.
