When I first began peer to peer lending, I really had no idea how complicated it could be. Some peer to peer platforms seem easy to understand on the surface, but once you delve deeper, terms and conditions can complicate matters.
There are some essential lending aspects you should pay special attention to. One of these considerations is who exactly are you lending to? Loan borrowers or the peer to peer lending business or platform itself?
Below is a list of platforms I have used, or have experience with, and my opinion as to whom you’re lending your money to. I came to these conclusions by contacting the platforms directly and by reading the websites Terms & Conditions. (Please note Terms & Conditions change frequently so this table is for informational purposes only).
|Wellesley & Co.||Mixed*|
* Wellesley & Co. offers mini-bonds where investors lend to the platform and standard peer to peer loans where loans are from lenders to borrowers.
** Savings Stream: Some older loans are still under their old terms in which investors lend to Lendy Ltd. aka Saving Stream (platform). New loans are under new terms in which agreements are between lenders and borrowers.
So why should this information matter to you? In the event of a peer to peer ceasing to trade, these loan agreement terms could be the difference between you being able to recoup your investments and you losing every penny. For example, suppose you lend money on a platform whose terms state you are lending to the platform itself rather than directly with the borrowers and a few months later the platform goes bust. You would essentially be another creditor in a long line of creditors trying to collect.
If you lend on platforms with lender to borrower agreements, in the event of the platform ceasing to operate, a 3rd party administrator could be in place to manage continued loan collections and payments (in theory). Of course in either case, I believe recouping your investments would be difficult and thus is the risk of peer to peer lending.
In a recent bankruptcy of peer to peer company Be The Lender, an article was written about an investor was only able to recoup £1,162.50 of a £5,000 investment. Peer to peer companies do go out of business so it is wise to pay attention to how they operate.
Trustbuddy is the latest example of a peer to peer platform going bust.
Here is a list of defunct peer to peer platforms:
(Some of these companies went out of business, some were absorbed by other platforms while some continue to operate but no longer offer peer to peer investing).
|Company||Launch Date||Closed / Ceased P2P|
|One Stop Funding||2012||2013|
|Be The Lender||2013||2014|
|Invest & Borrow||2014||2015|
I would always recommend you invest in platforms where you have direct legal agreements between lenders and borrowers rather than lending to the platform itself.
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