P2P lending in Europe – The Ultimate Guide

P2P lending benefits both the investor and the borrower. It’s a new way to get money in the hands of borrowers that may not get money from a bank or that want an alternative method of borrowing. As an investor, it’s a great way to invest your money, enhance your returns, and help individuals and businesses at the same time.

Because crowdlending is rather new and there are many terms and questions that come up, we’ve created this guide to help you get a thorough understanding of the process, what you need to know, and how to get started on this popular investment.

Understanding Peer-to-Peer Lending

Peer-to-peer lending is a way to raise funds from a crowd. Together, you and possibly thousands of other investors can fund one loan. You do this through a crowdlending platform online. The entire process takes place online and you never ‘meet’ the borrower. Instead, you rely on the P2P platform’s expertise to vet borrowers and/or originators to provide you with great investing opportunities.

Here’s how it works:

  • Choose a peer-to-peer lending platform
  • Open an account
  • Fund your account
  • Choose your investments
  • Receive payments
  • Reinvest your earnings or keep them

That’s all it takes to get started. You don’t need excessive experience or have to be an accredited investor. You may be able to start with as little as $100, but obviously the more you invest, the greater your returns will be. As with any investment, you should start small and work your way up as you get more comfortable.

The P2P platform, if reputable, vets the borrowers carefully. Each platform has its own rating system that gives you an idea of the borrower or originator’s ability to repay the debt. The better the ratings are, the lower the risk you take. Just like with any investment, though, the higher the risk you take, the greater your returns. Since you can micro-invest or break up your investment into many small investments, you can diversify your investments into low -isk and high-risk investments, giving you a better chance at yielding higher returns overall.

The Types of Crowdlending

You’ll find two basic categories of crowdlending – company and consumer crowdlending. Company crowdlending may include:

  • Funding a startup business
  • Funding a business for expansion
  • Funding a business’s need for real estate purchases
  • Funding a business based on accounts receivables
  • Funding a business for agricultural purchases

Individual or consumer crowdlending means lending to a person, not a business. Common reasons for personal crowdfunding include:

  • Purchase a home
  • Purchase a car
  • Personal lending
  • Debt consolidation

Who can Invest?

The barrier to entry is minimal in crowdlending, which is why it’s becoming a much more popular investment vehicle in Europe and the UK. In general, you must:

  • Be at least 18 years old
  • Have valid proof of citizenship that meets the requirements
  • Have the money to fund the account

Most platforms have very low minimum opening balance requirements as well as minimum investment requirements. You may find platforms you can invest as little as $20, but of course, you can invest as much as you want. The low investment requirements make it easy to diversify your investments, maximizing your chances for a higher rate of return.

As you can see, you don’t need excessive knowledge or large amounts of money. It’s a great way for new investors to dip their toes in and start earning returns on their investments.

What are the Rates of Return?

Peer-to-peer lending is a great method of passive income. You can typically set it and forget it, enjoying the returns with each payment made by a borrower. Just like any investment, there isn’t a guarantee, but the average rate of return on P2P lending is typically higher than that on the stock market.

In Europe, the average rate of return is around 12%, but this obviously varies by platform, investment, and investor. No investment comes risk-free, but those investments made to borrowers with the highest rating and with a buyback guarantee offer minimal risk, but also the lowest rates of return.

In order to maximize your rate of return, try diversifying your investments over the course of many investments, giving you higher rates of returns on some, while offsetting the risk with loans offering a lower rate of return.

The Terms you Must Know

As with any investment vehicle, there are terms you should familiarize yourself with to ensure a complete understanding:

  • Buyback guarantee – Loans that come with a  buyback guarantee mean the originator will repay you the outstanding principal balance should the borrower default longer than 60 days. Many platforms offer this option, lowering your risk.
  • Secondary market – If you need liquidity, you need a platform with a secondary market. In other words, a place to sell your loan back to should you need access to your outstanding principal investment right away.
  • Ratings – Make sure you know the ratings of each borrower. You may invest in an individual or an originator. An individual is someone that borrows the funds directly. An originator is someone that already funded the loans and is looking for some liquidity by getting investments from peer lenders.

The Main Players

A few of the key players in the European market include:

  • MintosMintos is a top player in the P2P marketplace. With high rates of return, a secondary market, no fees, and a secure platform, they are a top P2P platform today. On average, investors see returns of 12% – 13% and many of the loans come with a buyback guarantee.
  • Twino – Twino offers investments in unsecured consumer loans. Twino doesn’t charge investors any fees, and offers a variety of risk-based loans to choose from. Twino’s platform is easy to use and its dashboard annualizes your rate of return, giving you a good idea of how well your investments are performing.
  • Viventor – Viventor offers loans from loan originators that already pre-funded the loans. With 15 loan originators to choose from, you can diversify your risk and maximize your rate of return. Viventor offers high rates of returns, sometimes around 15%, and they require their originators to have at least 5% skin in the game, reducing your risk slightly.


Is P2P lending safe?

As with any investment, there’s risk involved with P2P lending. In order to minimize your risk, do your research. Choose a platform that vets its borrowers and originators carefully. Make sure there is a buyback guarantee and/or a secondary market, depending on your requirement for liquidity.

How do P2P platforms make money?

Since most P2P platforms don’t charge investors, it may seem hard for them to make money. But, they make it from the borrowers and/or originators. P2P platforms charge origination fees and other administrative charges in order to make a profit. Some also earn a spread between the interest rate charged to the borrower/originator and the interest rate paid to you, the investor.

Why do borrowers use peer-to-peer lending?

The reasons vary, but most commonly, borrowers that aren’t approvable by a bank often turn to this lucrative lending method. Because there’s no bank involved, you or the originator can create rules that may cater to those that may be a good risk but don’t meet the rigid bank requirements.

How do I choose the right platform?

No two investors will have the same reasons for P2P lending or the same risk tolerance. Choose the platform that offers the safeguards you need (buyback guarantee or secondary market) as well as the rate of return you desire. Do your research, read reviews, and read the fine print before investing your money.

Is there a minimum investment required?

Most P2P platforms have low minimum investment requirements. The point of P2P lending is to diversify your risk, which means investing in multiple loans. With low minimum requirements, you can invest in hundreds of loans with a small amount of money, increasing your risk of a high rate of return.

If you are looking for a new way to invest this year, consider trying P2P lending or crowdlending. The concept helps investors earn greater returns on their investments while helping borrowers get the funds they need, whether businesses or individuals. You could play a role in business development or in helping consumers get out of debt or fund a large expense. The key is finding the platform that does its due diligence and protects investors as much as possible. While risk is inevitable in any type of investment, P2P lending minimizes the risks you’d face in other investment types, including the stock market.

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