I often get the question: What is crowdlending? That’s a very relevant question because only a little portion of the population knows what crowdlending is, and even fewer have invested through crowdlending. By that reason, I think it is fair to give an explanation of crowdlending, and how it works.
Crowdlending – or P2P Lending as some calls it – is a way to lend out money directly to individuals or businesses through crowdlending platforms. To lend out money was (and still is) normally a job for traditional banks, but with the introduction to crowdlending platforms, you now have the possibility to lend out money and in return receive a highly profitable interest. That means you somewhat take over one of the traditional business models of banks by lending out your money directly to individuals or businesses.
You can, of course, lend out money directly to friends and family members without the use of a crowdlending platform as you have always been able to do. However, it is both time-consuming as well as difficult, because you are also in charge of the legal stuff together with the borrower. At the same time, you need to know someone in the need of loan before it is even possible. However, with crowdlending platforms, you as a lender will be connected directly to potential borrowers. By that reason, you do not need to know someone in the need of a loan to get started with crowdlending, because you will be connected to borrowers through the different P2P platforms. These above-mentioned crowdlending platforms will even take care of all the practical and legal stuff. For instance, you do not, for example, have to pay out the loan, send reminders and make a contract. The crowdlending platform will take care of that.
The only job you have is only to create a profile, fund your account and chose the different loans you want to fund (or be a part of funding together with other lenders). At some P2P Lending platforms, you even have the possibility to make an auto invest strategy with specific criteria for loans you want to invest in. When a new loan appears with these different criteria fulfilled, the P2P Lending platform will automatically invest your money in these. By that reason, it is very little time-consuming to use invest through these platforms, while you (in my opinion) receive a very good interest. I personally only use about an hour every month on the different platforms I have invested through to edit my various auto-invest strategies to ensure they gain the highest interest rate.
As you can see, the interest rate is very good regarding the above-mentioned crowdlending platforms. The interest rate is often over 10% (and sometimes even way more than that). That is way more than you and I get as interest rate at our bank account. The high interest rate is also why crowdlending have become so popular (and why I like it that much). It is just fantastic to see your own money grow at that speed. However, it is important to say that the above-mentioned interest rate is found on these different crowdlending platforms websites. Although I often receive the same interest rate as listed on their websites and sometimes even a higher interest rate, it is not certain that you will receive the same interest rate. However, it is important to notice that the high interest rate from the crowdlending platforms comes with a higher risk than just keeping the money at your bank account. I think the higher risk is worth it, but at the same time, I think it is very important that you consider this risk yourself. By doing so, you ensure that you only place money in something, where you are aware of the different risks.
When we are talking about crowdlending risks anyway, then let us talking about bankruptcy. Many people ask what will happen if one of these crowdlending platform files for bankruptcy, when you have invested through them. It is so different from platform to platform, why you must read the terms of the individual platform to understand what happens if they go bankrupt. Bankruptcy is, of course, a risk, but to be honest, it is never something that I am really afraid of. These platforms are very big (just look at the total invested amount) and many of these are also regulated by normal national financial regulative agencies. That makes it (in my opinion) pretty safe and not risky business.
It is important to mention that all information above is collected from the websites of these crowdlending platforms, and it is only updated once in a while, why some information may be misleading. At the same time, please do your own due diligence before investing through these P2P-Lending platforms. Do not only take my word for it.