Peer to peer lending for short P2P is an innovative and advantageous investment solution in several respects. But you still have to know how to invest your money in order to make your loans profitable while minimizing the risk of loss.
There are a few basic rules to follow when you want to invest your capital in P2P. In general, you need to make sure you choose the right platform, diversify your loans, look at the statistics of each borrower and regularly monitor the progress of your investments.
Choose the right platform
This is a key step for the success of your peer to peer investment. In France, P2P platforms are subject to strict regulations and must have mandatory approvals depending on whether they operate under the status of CIP or IFP. Your first instinct will therefore be to check the legality of the chosen platform.
Several other aspects must be considered. In particular, the guarantees it grants to investors to mitigate the risks of repayment defaults that may result from the insolvency of borrowers or the bankruptcy of partners. You should also look at the minimum loan amount, the interest range, the terms offered, as well as the commission fees set by the site.
Finally, you need to look at the headquarters of the platform and consider when it was created. In practice, older P2P platforms are proving to be more reliable than recent ones, which are on the increase.
Don’t bet your money on the same horse
Diversification of investments is one of the golden rules when you invest in P2P. Diversification is essential both in the choice of platforms and in terms of the loans to be granted. It is not recommended to invest a large part of your capital on a single project or to put all your money in a single P2P platform.
The ideal is to split your capital and distribute it over several more or less secure investment projects. Likewise, invest as much as possible on different platforms. The advantage of diversification is to limit risks. In the event of the borrower’s insolvency or the platform’s bankruptcy, your losses will be less serious.
One of the great advantages of P2P investing is flexibility and simplicity in portfolio management. Depending on the platform, your lender account can be configured to automate your investments and the reinvestment of your profits according to the criteria you have specified.
You take advantage of the advanced and relatively reliable technology of P2P platforms to make your money work and earn passive income. It is still important to take a look at your dashboard to monitor the investments made and the evolution of the portfolio.
Watch the statistics of each borrower
One of the major risks of a P2P loan is having to suffer the default of a borrower. To protect you from this, P2P platforms carry out a careful analysis of the borrower’s profile to assess their risk of insolvency.
This assessment is used to assign a credit score or score. It is accompanied by an indication of attendance or late payment in the repayment of loans, among other things. In general, the likelihood is greater for borrowers with high scores to repay the loan on the agreed term.