P2P Lending Comparison - Best P2P Lending Europe and UK

*Capital is at risk and rates are not guaranteed. Please read our important points, which may act as a key factor in deciding upon the best p2p lending platforms of your choice.

Buyback guarantee

Most peer to peer lending sites and marketplaces in Europe provide unsecured personal or p2p business loans, meaning there is no collateral to back the loan. The peer-to-peer lending platforms use an extensive analysis of each person and business that applies for a loan taking into account many factors the likes of monthly income, are they homeowners or not, debt history, credit card payment history,….etc.

By analyzing these factors they create a risk profile and based on that they decide if the applicant gets a loan and for which interest rate.

High-risk p2p loans in Europe offer retail investors high-interest rates but at the same time, they have a high chance of defaulting. A borrower is said to have defaulted when it fails (for any reason) to meet its repayment obligations – such as missing a monthly repayment installment. Default rates are generally used to measure the average rate at which borrowers are expected to default across a given Peer-to-Peer lending platform. Default rates are generally derived from historical data and therefore cannot be used to predict the future default rate of a platform with any certainty.

As there is no collateral this can mean that an investor loses his invested/lent money. By diversifying your loans over many different loans with varying risks you can lower your risk…and this is what most investors do.

When Mintos entered the European market they decided to offer secured p2p loans. Up to that moment, this had not been done on a large scale yet in the European p2p lending market. And Mintos, therefore, created a great new addition to these loans.

Buyback guarantee secured p2p loans will net you, as an investor, less interest than unsecured loans, but it will greatly reduce your risk as Mintos will buy back the loan whenever the borrower defaults on his payment obligations for 60 days or more. In such a situation the loan is automatically bought back by the loan originator from the investor at the nominal value of the outstanding principal, plus accrued interest income.

This is a great system that greatly reduces your risk when you lend through p2p lending platforms.

Other peer-to-peer lending platforms in Europe offer different types of protection schemes to reduce the risks of bad loans. Here are other important protection types:

Collateral

This means that if a borrower defaults, the lender will be able to claim the collateral (e.g. property or vehicle) that the borrower has provided. If the borrower does not repay their loan then the collateral can be sold to cover any shortfall.

Collateral may be real estate in the case of a mortgage loan, a vehicle in the case of a car loan, or equipment in the case of a business loan, as well as many other types of collateral, as indicated under each loan.

When there is a collateral securing the loan. A loan to value (LTV) ratio is a number that describes the size of a loan compared to the value of the asset securing the loan. A higher LTV ratio suggests more risk because the assets behind the loan are less likely to pay off the loan

Personal Guarantee

For certain loans (e.g. business loans), other credit enhancements are obtained, such as a personal guarantee. It includes, for example, real estate objects, cars, company assets or shares, personal guarantee or third-party guarantees.

Provision Fund

Some Peer-to-Peer lending platforms operate internal reserve funds which are designed to protect the lenders against losses in the event that a borrower defaults on their repayment obligations. Reserve fund sizes and their terms vary between platforms. Reserve funds are not compulsory and there are no guarantees over their effectiveness.

AutoInvest Feature

Auto Invest enables users to make customized Filter and invests their funds in loans based on their standards automatically. Auto Invest feature saves time and effort. Before this feature is introduced, lenders were required to invest manually and often assess the status for new investments. The tool simply invests available funds on the loans, reinvesting whenever possible. The Auto Invest feature could be stopped and re-triggered at any time.

Auto Invest is a very effective tool for saving time spent on investment activities. It also allows you to access newly placed loans in the system before manually-made investments.

Minimum investment amount

The low minimum investment makes diversification easy. The P2P lending character implies that you must construct a portfolio of hundreds of loans at which each loan is a small percent of the total portfolio.

Getting diversified across several loans is among the secrets to having a successful experience when investing in p2p lending. Like other investments, diversification will lower the possibilities of your investment returns volatility.

Secured Short-Term Loans

Short-term loans investments are more liquid or reachable in the event you want your cash. As soon as you've invested in loans you'll begin receiving payments on your account within 30-45 days. The moment your balance goes over minimal investment amount you may invest your money in new loans with auto invest feature. With p2p lending you're getting interest and principal payments for each loan every month.

By definition, Compound interest is interest added to the principal of a deposit or loan thus the extra interest brings more interest. This increase of interest is known as compounding. In comparison to simple Interest at which just the original capital earn interest, the compound interest gives more advantage for Lenders.

Early Exit

One of the problems if you decide to invest in long-term loans on peer to peer lending sites is that it's hard to turn around and sell them if you need the cash you've invested.

The Secondary market is where investors can place their investments for sale to other registered investors. Secondary market allows lenders to cash out loans early. To do this a lender simply sell his loans at Premium or discount. Investors can exit their investments by selling the remaining loan to another investor.

However, a successful sell-out requires both a willing buyer and willing seller and there are no guarantees that a buyer will be found. Where a buyer is found the selling lender may need to take a discount on the value of the loan at the point at which they wish to sell-out. Platform fees may also be applied on any loan fractions traded, on the part of the buyer, the seller, or both.

Investing Overseas

Some Peer-to-Peer lending platforms are open to international investors depending on which country you reside in or which citizenship you hold.

Don’t be afraid of investing overseas. Investing abroad provides increased diversification of risk and can offer higher returns. 

Within Peer-to-Peer lending, diversification of risk is the concept of spreading loan capital across a large number of different borrowers, platforms and location, in order to minimize the impact to the lender of any one borrower defaulting on his or her repayment obligation.

In some p2p platforms you are qualified to invest if You have a bank account in the SEPA region or third countries currently considered to have AML/CFT systems equivalent to the EU. If your bank does not use SEPA transfers. With Transferwise borderless account you get instant international bank details to receive money from over 30 countries around the world with zero fees. That means you can transfer money or get paid from the UK, the US, Australia, and any country in the Eurozone, and no-one pays any fees.

Some p2p platforms like Twino and Mintos in Europe offer loans conducted in different currencies to protect investors from currency risk. This functionality allows investors to choose the currency that they want to invest in. And every transaction is processed in the chosen currency (including deposits, withdrawals, investments, repayments, etc.).

Fees

Fees reduce the value of your investment. Over time, even ongoing fees that are small can have a big impact on your investment. When researching p2p lending sites be sure they didn’t charge any fee.

The minimum investment amount in most p2p lending platforms is 10 Eur. It's worth a try. You will learn along the way !