Tips To Consider To Get The Most Out Of Peer To Peer Lending

Do you have a plan of becoming a peer to peer lender/investor?

If you are new to the industry, you might be wondering how to make the most of your investments.

One specific question that you will be asking yourself is:

What actions should I take to lower risk and potentially increase returns?

Well, here are some top tips to consider:

1. Research before investing. This is the most important thing! Before you invest, you should do some research and study the entire loan history of the lending company you’re thinking about working with.  Ask the following questions:

• What percentage of loans fall into default?
• How are borrowers screened and evaluated?
• What average returns have investors produced in the past?
• What’s the process for handling late payments?

You need to remember that different lending platforms have different procedures for screening, late payments, and defaults.

Additionally, look for investors who have had success with peer to peer lending and learn from both their mistakes and their achievements. You can also search for websites that give free lending tips and learn from people with practical, everyday experience with peer-to-peer lending practices.

If you feel like you don’t have all the answers yet, don’t get started!

2.Take it slow. If you’re just getting started as an investor in P2P lending, take it slow. Remember, there is no better teacher than first-hand experience.

Take advantage of the opportunity to lend smaller amounts, some can be as low as even £10! It is ideal to invest in small amounts at the beginning as it will give you time to understand your lending platform so to avoid making costly mistakes.

“P2P lending is not passive. You need to spend time finding new loans to invest in. If you don’t have time, then start small and see if P2P lending is a good fit for you.” suggested Joe Udo, Editor-In-Chief at RetireBy40.org.

3. Know your risk tolerance. Everyone has a risk level they’re comfortable with. Before you invest, you need to know what level of risk you can tolerate.

“Think carefully about how much risk you are prepared to take, bearing in mind that you could lose the whole of your investment in a loan if it defaults,” wrote Graeme Marshall, CEO of FundingKnight.

4. Diversify your loans. One way to lessen the risk of defaults and protect your investments is by diversifying your loans. If your money is diversified across two, three, tens or even hundreds of loans, your profits are likely to be higher than your defaults.

5. Reinvest your returns. Do not just cash out your P2P returns whenever you’re able. Benefit from the compounding yields by repeatedly reinvesting your profits into new loans.

Or you can give yourself a “guaranteed return” by using your P2P earnings to repay one of your own debts, like a mortgage or a student loan.

6. Use automation to reinvest. Keeping your principal and interest completely invested is a great way to make the most of your investments. It’s a hassle to keep every bit of money constantly reinvested without making use of either some automation or a ‘hands-on’ company. So to save you a lot of hassle, let the lending platforms or the firm do most the work.

7. Keep a strong emergency fund. You need to understand that when you invest in P2P lending, you will not be able to withdraw money from the P2P platform at a whim. Therefore, you need to ensure that you have a strong emergency fund that can cover your personal expenses before you decide to become a P2P lender.

This is why we at Stratosphere will not take on and register any lender. We first ensure the profile meets the risk and that lenders or investors are not over exposed – hence our ‘face-to-face‘ approach when facilitating loans.

Investing with peer to peer lending platforms is a fairly straightforward process. However, it is necessary for you to take reasonable precautions like the ones outlined above.

Follow these guidelines, keep learning everything you can, and never take on more risk than you know you can handle.

When you are ready to take the next step, register your interest with us.