Things To Consider While Choosing A P2P Platform

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Peer to peer lending

Peer to peer lending is a trending topic among investors because it is an alternative investment that is helping people to earn passive income. We all know that having a diversified portfolio is the best way to protect the investment from defaults.

The same is with the p2p investment. You can invest in different p2p platforms to reduce the risks of defaults. However, the most challenging thing, in this case, is choosing the right platform. There are dozens of p2p platforms present in the market.

From highly specialized firms to large marketplaces and from well established first rising stars, all are present. So it can be challenging to choose a platform that meets your financial goals and does not go bust before you start getting profit.

Before choosing a platform, it is better to make your investment strategy. You must think about how much money you want to invest and for how long, how much risk you can afford to take and how much return do you want to earn.

All of this will help you determine your investment goals and make it easy to find a suitable platform. Here in this article, we are describing how you can find the peer to peer lending platform for you. You can find it by following three simple steps:

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Is This Platform For You?

This step helps you to exclude the platforms that do not match your essential criteria that including:

Eligibility

First, you should check whether you are allowed to use this platform. For example, many US-based platforms do not allow EU citizens to invest. European platforms also require you to have a residency and bank account of a European country.

Currency

Most p2p platforms prefer you to invest in the local currency, such as European p2p platforms prefer Euros. If you want to invest in other currencies, you must check the rates. However, in this case, you will have limited options to choose the p2p platform.

Language

When choosing a p2p platform, you must look at the language in which the platform operates. Although most p2p platforms use English, some prefer the local languages. Therefore, you must choose a platform with a language that you can understand.

Minimum Investment

One other thing to look at is the minimum investment that a p2p platform allows you to invest. It varies from platform to platform. Regardless of the minimum investment that a platform allows, you must have enough capital to build a diversified portfolio.

Does The Platform Meet Your Investment Goals?

The second step helps you to filter the platforms that are compatible with your investment goals. In this case, you must consider the following factors:

Type Of Investment

There are different types of p2p loans, such as consumer loans, business loans and property loans. Every investor has their own preferences to choose the type of loan to invest in. Some platforms offer all these types of loans, while others specialize only in a single class. You must select a platform offering the type of loans in which you want to invest.

Your Risk Tolerance

It all depends on you whether you want to play safe or earn high returns. The interest varies from 6% to a maximum of 20%. The more risk you are ready to take, the more interest you can earn. So choose a platform according to your risk appetite.

Your Current Portfolio

You may already have invested your money in consumer loans and now want to complement it with some real estate or business loans. You can also consider non-p2p investments such as bonds and stocks.

Investment Horizons

If you have extra money and you do not want it to sit idle, you can invest it in short term loans. You can also invest in p2p platforms that offer you an easy exit without paying any extra cost. However, if you want to invest in long term loans, you must think twice, especially when there is no withdrawal option before the end of loan terms.

Is The Platform Transparent and Reliable?

After eliminating the platforms that do not match your criteria and investment goals, you must look at platforms performing best in the market. Here are some points that can help you in choosing these platforms:

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Experience

You must invest with a platform that has experience in alternative finance. Look at the team of experts that a platform has because strong managerial and financial expertise can make better decisions and manage loans efficiently. If you do not find such information on a platform, avoid investing with it.

Track Record

You must have a look at the statistics of the platform. That includes how many years it is in the market, how many investors trust the platform, the number of loans and the number of default loans. Although past performance can not necessarily determine future performance, it only gives you an idea of how much a platform has been managed.

Features And Useability

Take a look at the key features of platforms, such as the investment and withdrawal options and the availability of the auto-invest function. If you want to invest manually, you should read the deal descriptions and find how easily you can navigate them.

Investment Security

You must check the security methods of the platform by looking at things like who the borrowers are, where they come from and whether the platform checks the creditworthiness of the borrowers.

Transparency

Find how easily you can find the information you need on a platform. You can check the transparency by reading online reviews. In addition, it can help you to know the experience of investors with the platform.

Diversification option

Check which type of loans and borrowers profile a platform is offering. If it provides a variety of loans with borrowers of different risk profiles, you can build a diversified portfolio. We hope that these steps can help you make an informed decision and choose the best peer to peer lending platform. Moreover, you can compare all the available p2p platforms so that you can invest in a platform offering competitive interest rates.