what is crowdlending? (updated)

I don’t recommend investing in CrowdLending anymore as the industry is full of scam and each time a new platform vanishes, so stay safe and don’t put a penny in P2P.
I did withdraw all my money and quit this investment forever

Also, know as Peer-to-peer lending, or P2P, in short, is the practice of collectively lending funds to individuals or businesses via online platforms or service providers – bypassing banks and other financial institutions.
Crowd-lending platforms are connecting lenders to borrowers. They operate at a rather cheap overhead compared to traditional financial entities and do not levy heavy fees. Crowd-lending platforms offer significantly higher returns on investments compared to banks and are an attractive alternative (or addition) to stocks, bonds, real estate, and savings accounts.

Why Crowd-lending?

Crowd-lending is preferred by those who take an interest in managing their finances and who wish to easily track their investments. Furthermore, investors can utilize the huge lending market to divide their investments among hundreds of loans and multiple lending platforms, thereby minimizing risk.
It is also an easy process, starting from signing up for one of plenty of platforms, getting verified, depositing money and selecting investments to put money on.
Many new investors whose new to the investing scene can start investing with very little starting capital. While property investments and stock trading require substantial resources, it’s possible to get started with as little as € 10.

How does it work?

Crowdlending usually involves lenders (privates or companies) lending money to a borrower. Borrowers willing to receive funding for their project apply for a loan at the crowdlending platform. During the process, they must provide various data needed by the platform to review their creditworthiness and borrowing capacity.
After the contract is established, the crowdfunding platforms transfers the invested loan amount from the investor to the borrower. In return, the borrower has to repay the loan amount to the lender over a predefined period, plus interests paid usually on a monthly basis.
The entire process is handled by the crowdlending platform, meaning that any payment delay or inability to pay on the part of the borrower is handled by the platform, without the investors themselves having to intervene, in exchange for a fee (mostly paid by the borrower).

“Rule No. 1: Never lose money. Rule No. 2: Never forget rule No.1” – Warren Buffett

Risks

Investing in crowdlending has a number of risks. These risks can be optimized by spreading risks on multiple platforms and investments. But still, these risks should be considered before investing.
Borrower default – Happens when the borrower can pay any more interests or can’t give back the invested amount. This situation can be avoided by investing in platforms that ensure to pay you back if this happens (it’s called BuyBack guarantee. You can see it indicated with an in the list of crowdlending platforms).
Loan originator bankruptcy – Happens mostly when too many of their borrower default which makes their finances negative
Crowdlending platform bankruptcy – Can happen for many reasons (bad returns, bad risk management, too many borrowers default, small cashflow, market-wide crash …). Usually, good platforms are prepared for this event. A contract with a third party firm is put in place to manage the cashout of the loans by the investors.
Scam and Ponzi schemes this is another layer of risk which a lot of these platforms hold. just recently 2 very famous platforms turned to be scam and investors lost millions in them.

Returns

You can expect returns on investment of around 12% per year on average depends on the platform, the projects you invested in and the duration.

Best platforms

There is a huge amount of Crowdlending platforms and I can’t tell one is better than another, but I will tell which one I picked and I’m investing after I did some research HERE

Honestly, I heavily rely on the information many known European bloggers that invest mainly in Crowdlending. They get in touch with these platforms, they had the chance to visit their offices, have chat with managers and also see some projects.

My opinion

I see Crowdlending as a good diversification to any portfolio, I just advise not to put more than 5-10% of your portfolio in it, it still a very risky investment, even when you see a lot of influencers investing huge amounts, remember that affiliation commissions play an important role in promoting this type of investments in a very biased way.

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