P2PIncome |Disclaimers
Not Financial Advice (NFA)
We are here to provide information and clarity in a nascent industry still finding it's place in the investment world. Peer-to-peer lending is an emerging asset class that is growing rapidly due to it's small barriers and attractive interest rates.
That being said, no investment is without risk. There is a direct correlation between risks and reward. As an investor, that is something you have to accept before investing. Otherwise, investing may not be the road for you to embark on. Neither P2PIncome or the investment platform is liable for your investment decisions.
Please be cautious when investing and keep in mind that peer-to-peer lending is still a volatile industry with little regulation.
Risks
Like any investment class the risk to investing is losing your principal. Even the biggest and most reputable platforms have left their investors at a loss and disappointed.
Peer-to-peer lending platforms come in quite a few varieties. There are platforms that originate loans and other platforms that aggregate loans from loan originators. The intricacies of these platforms vary on the kinds of loans they provide and tools they need to service both lenders and borrowers.
Let's examine a few of these risks:
- The platform itself goes bankrupt
- The loan originators on the platform go bankrupt
- The borrowers on the platform go bankrupt
In each of these situations your capital is at total risk of being lost. And in such situations very few platforms have a positive track record of successful fund recoveries.
Here a few good questions to avoid being put in such a situation:
- How many years has the company been around?
- Does the platform have a profitable track record?
- Does the platform communicate with their customers and divulge their financial statements?
- Does the platform reveal the people behind the platform?
- How does the business operate? Does it make sense to you?
- How many forms of risk mitigation does the platform have?
Some platforms have certain features that enable some form of risk mitigation.
Such as:
- Buyback Guarantee
- 1st Rank Mortgages
- Provision Funds
- State Guarantees
- Royalty Collateral
- Motor Vehicle Collateral
Some platforms excel in these methods of retrieving funds. And some platforms struggle, please keep in mind that you should always be wary of what is happening with your capital.
Other risks that are not well explained on many peer-to-peer lending platforms is this idea of cash drag.
On many real estate lending platforms, loans can take a long time to be filled. Your capital could be waiting 1 - 2 months before it actually generates any capital. Because time is money we caution investors who are looking for liquidity to stay away from such platforms.
Useful Warnings
There is always a dark side. Like in any other financial project there are people who wish to exploit the system.
Unfortunately, peer-to-peer lending is the perfect disguise for a pyramid scheme. Where everyone deposits money into the system and one day the CEO or which ever founder withdraws your funds and walks away with it.
This has happened to RateSetter, Monethera, LendingClub and many more platforms.
Big names that dominate the market have scammed billions of dollars out of people. As they have in the stock market, real estate, precious metals, stones and so on.
There are certain red flags that you can look at before deciding to invest in a peer-to-peer lending platform:
- No manual investing
- Only unsecured loans
- Anonymous borrowers
- High risk country loans
- Slow response time
- No social media
- Anonymous loan originators
- Unprofitable loan originators
- No forums or community
- No financial statements
- No buyback guarantees
- No mortgages
- Failed fund recoveries
- High percentage of late loans
Anyone of these flags in our opinion is cause for a closer look and a more thorough investigation. If you only discover one of these flags with your lending platform it should still be relatively safe. Anymore than two flags would be sufficient reason to find a new platform.