have you heard of crowdlending or P2P lending? Did you know that it is a form of investment with a good return? good profitability? Before you start investing in crowdlending, find out more about how it works more about how it works.
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what is crowdfunding?
Crowdfunding (crowd = crowd, funding = financing; Crowdfunding = crowdfunding) is the financing of a company or a project by different people is the financing of a company or a project by different people who do not know each other who do not know each other.
Difference between crowdlending and crowdfunding
There are several types of crowdfunding:
- Donation-based: investors do not expect expect nothing in return.
- Reward-based: investors receive a small receive a small gift or public recognition.
- Pre-order / pre-sale: Investors receive an early investors receive an early version of the product at a reduced price.
- Equity-based (crowdequity): investors receive shares in the company investors receive shares in the company.
- Loan-based (crowdlending) (crowdlending): investors receive regular interest payments and the payments and repayment of the invested capital at the maturity of the loan of the loan.
what is crowdlending?
The crowdlending, also known as P2P (Peer-to-peer) lending, is one form of crowdfunding is one of the forms of crowdfunding.
The crowdlending allows individuals, entrepreneurs and companies to finance themselves by means of money provided by a large group of people.
Definition of crowdlending: Crowdlending is the financing of companies, persons or projects by a group of individuals.
There are three participants in crowdlending:
- Those who request the loan or borrowers: The person or company in need applies for the loan through a P2P lending platform (loan originator). They must meet a series of requirements and provide the necessary documentation. Some of the advantages for borrowers are that they usually need less paperwork, the loan is granted faster and at lower interest rates than they would have to pay to traditional financial institutions.
- Intermediary platforms: Intermediary platforms check the background of borrowers, set the interest rates for each loan according to the risk profile and post an anonymous application on the platform to attract lenders – people who will contribute their money to finance that loan. They are also responsible for arranging repayments.
- Lenders: Lenders invest small sums of money in the projects they have decided to support. In return they receive interest when the borrower pays back the money. One of the advantages for them is that the interest rates they receive are usually higher than those of classic investment banking products.
Origin and evolution of crowdlending
Many experts consider the launch of Zopa in the UK in 2005 as the origin of the crowdlending business model of the crowdlending business model.
Le this was followed by the creation, in the United States, of Prosper.com and Lending Club in 2006. Since then, crowdlending has continued to grow, with new platforms appearing all over the world platforms appearing all over the world. The growth of this form of financing, for some, and investment for others, began to accelerate around 2013.
Lending Club is the largest platform in the world. In the European market, the pie is is divided between different platforms. The Baltic countries have the most platforms have the most platforms operating at European and even international level.
how does crowdlending work?
Crowdlending (crowd = crowd, lending = lending) means that many people lending money to one person or company.
It works through an intermediary platform that connects lenders with borrowers lenders with borrowers. The platform is the connection between the person or the platform is the connection between the person or company that needs money and the people who lend their money.
But these platforms are more than just a link. On the one hand, there is a company that on the one hand, there is a company that originates the loan. The loan originator platform the loan originator platform designs the terms and conditions of the product, studies the requirements of the and arranges the loan and manages the payments.
On the other hand, the same platform, or a separate platform for investors, offers these loans to investors platform for investors, offers those loans to investors willing to lend money money.
Normally each individual investor, i.e. people like you and me, lends a small amount of money and like me, lends a small amount, which does not cover all the money requested. The aggregate of all the contributions, from small investors, will be the money that the borrower will receive that the borrower will receive.
The one who lends his money will receive interest in return. The the intermediary platform will take care of the management of the payments.
The loans are similar to traditional bank loans, they usually have a relatively short repayment period: 1 month, 2 months or even more than 12 months even more than 12 months. The interest rate, in most cases, is over 10%, and some originators will 10%, and some loan originators include fees for late payments late payments.
what is the risk of investing in crowdlending?
Well, as always, every investment has a risk. The most common risk is the risk of default. That the borrower defaults on the loan. Some platforms offer a guarantee to repurchase the loan in the event that the repayment deadlines are not met. To minimise the risk of default, it is advisable to diversify by investing only a small amount of money in each loan. P2P lending platforms allow small amounts ranging from €1 to €50 to be invested.
Another risk is the platform risk. If the platform goes bankrupt we could lose the money we have invested through that platform. However, many platforms have policies that cover cases of insolvency with guarantees through third party companies. In any case, to minimise this risk it is also advisable to diversify and not invest in a single platform.
Crowdlending platforms
There are currently many platforms on the market. Here you will find crowdlending platforms operating in Europe.
When choosing a crowdlending platform to invest in you should take into account you should take into account criteria such as risk, type of loans..
Advantages of investing in crowdlending
- Profitability: Nowadays, interest rates are usually are higher than those obtained in traditional bank investments. Depending on the platform you can get around 10% per year of the money invested money invested. This means that if you invest €1000 at the end of the year 100 in interest.
- Liquidity: The terms of the loans in which you will invest are usually short you will invest are usually short, many of them do not exceed 12 months, some are as short as one month. It is an investment in which you can recover your money back in the short term. But also, if you need to recover the money you have invested at any time, you can do so invested at any time you can do so. Many platforms have a secondary market where you can put your investments up for sale. Another someone else will buy it and you will get your money back.
- You will receive monthly interest. Unlike many fixed-term deposits where you have to wait for the term to expire, by investing in term, by investing in P2P loans, you will receive interest every month. In addition, because you will diversify into several loans and since you will diversify into several loans and the repayment date of each loan will be different, you will will be different, you will see how you receive interest every day.
- It is a simple investment. It is not necessary to have advanced financial knowledge to invest in crowdlending. The mechanism is simple and easy to understand for everyone. Moreover, P2P platforms make it easy for us by offering the necessary information in a transparent way.
- You don’t need to keep an eye on your investments. Most platforms offer self-investment options, whereby, after selecting a number of criteria after selecting a series of criteria your money will be invested automatically. Unlike other types of investments, such as investing in the stock market, where you have to keep an eye on the market, investing in crowdlending you don’t need to spend time managing your portfolio portfolio.
Disadvantages of investing in Crowdlending
- Like all investments it has its risks. However the risk of losing your money decreases if you diversify your portfolio.
