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Just How Safe Are Lending Platforms in 2024

One of the first questions you will be asking yourself, as you venture through Peer-to-Peer (P2P) platforms, is just how safe you are when you’re borrowing. Naturally, anyone would want to invest their money with a 100 percent guarantee that their money will be safe. However, this is never the case with investments.

Investing in any type of loan will come with its own sets of benefits and risks, but the latter comes in varying degrees, so you need to keep a lookout on how much risk you can handle and the advantages you will be getting from this investment. Fortunately, P2P loans have multiple benefits and applicable strategies that can reduce the risks, so read the following information to determine if P2P loans will actually be beneficial to you or not.

Risk-Free Application Process

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You would be surprised by how P2P loans are processed easily. Traditional banks will have you wait for days on end to get a loan, while P2P loans will grant you approval almost immediately with a vast network of loan providers. The P2P lending specialists at point out that this process costs minimum fees, unlike traditional bank loans that require application fees, insurance fees, and so on.

However, you must look for research P2P services first, compare the benefits each one provides, and make your decision upon this data. Most P2P services will not demand investment fees, but there are exclusive benefits such as the possibility of using auto-invest and availability of large loans. Luckily, there is no risk in regard to the approval process or fees required.

A Quick Approval

As mentioned above, many people consider the slow approval process of banks loaning unreliable and slow. You may even have to wait for days or even weeks to get an approval for a loan. This could damage your financial situation if you weren’t already and be more of an inconvenience than actually helping, especially if you need the money quickly. Fortunately, P2P lending is preferred by many investors as you will usually get instant approval without the usual hassle. Even if you have a bad credit score, it won’t affect the duration in which you’ll be waiting for your loan. This is why many people feel secure using this type of loan.

You Get to Choose the Type of Investment You Want

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Bank loans will be usually limited to only one type of project or business, which makes borrowers head to P2P loaners, as they will have the chance to compare between different projects and/ or businesses they want to invest their loans in. This means that you will be able to compare and contrast all the pros and cons of different investments and decide which one to follow to decrease the risks as much as possible. Of course, knowing where the higher risk lies will help you become a better investor.

Loan Originator May File for Bankruptcy

Some platforms will facilitate the process by connecting you to a loan originator. Platforms such as Mintos will do this, which means that they have no contact with you. Because loan originators are the ones who’ll provide you with a buyback guarantee, your investment, as well as your buyback guarantee, won’t be worth much. P2P platforms are aware of this issue and they have policies regarding handling bankruptcies so that borrowers can retain their investments.

Recovering most investments will be useful for P2P platforms and their borrowers as well since this will ensure that they are trustworthy. For borrowers, to minimize the risk of losing investment, the best strategy would be diversifying your portfolio across multiple platforms, so you won’t lose all your investment once a loan originator files for bankruptcy.

Borrower May Not Pay Back

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As a loaner, you’re putting a great deal of faith in the borrower, someone that can quite possibly not return your money. So, there are a few strategies that you, the loaner, should follow in order to avoid this risk, such as funding loans with a buyback guarantee. This means that the loan originators, or the platform itself, will buy back the loan in case the borrower hasn’t paid back the loan yet. The next strategy you should try is, again, diversifying your loans across many platforms. No matter how big the risk you’re looking at, diversifying your investment can be imperative to minimize the risk in any type of investment.

Platform May File for Bankruptcy

Of the two previous scenarios, a platform going bankrupt is probably the worst-case scenario. There is no way around it. when a platform goes bankrupt, there are no policies that could protect your investments and your buyback guarantee. You will be risking losing your entire investment if the platform is going bankrupt and there is no plan that can retrieve your lost investment for you.

So, in order to mitigate or avoid such damage, the answer lies again in thorough research and proper diversification. Research means finding a trustworthy and reliable platform that is not likely to go bankrupt any time soon. Proper diversification means investing your money in multiple P2P platforms as well as in different investment types. So if anything wrong goes with a certain platform, you won’t be losing all your investment.

Recession May Affect P2P Platforms

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Because lending platforms have become popular just after 2010 (after the latest recession), there is no way to know how the recession would affect these platforms. Let’s face it, real estate and stocks were affected by the latest recession. It is only logical to assume the P2P platforms will be adversely affected as well. Because this is only an expectation, diversifying your portfolio across different types of loans will minimize the risk to a great extent, but remember that this is a risk which you have no control over, so you won’t be able to minimize it entirely.

The final verdict is that lending platforms are relatively safe if you choose a trustworthy platform and analyze the risk factors, but before you dive in headfirst into a P2P platform, you should do your research first on different platforms and the strategies investors follow to reduce the risks.

About Abdulah Hussein