Reviewing a P2P Lending Platform
We have received many questions asking how we rate, review and evaluate P2P lending platforms. In this in-depth guide, we reveal exactly how we go about this.
Note that this article is relevant for anyone who aims to expand their knowledge of P2P lending. However, in order to fully understand the below, it is useful to have a prior knowledge of the fundamentals of P2P lending.
Read Before Continuing:Important Information About P2P Empire’s Rating Process
- Every investor should determine their own rating process that aligns with their investment goals. The process you’ll find below is just one means of reviewing lending sites. We’ve found our methods accurate and beneficial, however, they might not work for everyone.
- Our ratings and reviews are not sponsored; this means they don’t have a bias and are written with the genuine intention of helping fellow P2P investors.
- Our ratings do absolutely not reflect the quality of the platform at any specific moment in time. While we aim to keep our reviews fresh, there is no guarantee that all of the data is always accurate.
- When reviewing platforms and perfecting our means of doing so, we have mostly used data that most investors can find on the internet .
- Our own experience, as well as some additional data that isn’t publicly available, is addressed in individual P2P lending reviews.
- Our reviews are not legal or investment advice and they, alongside articles like this one, should be used for informative purposes only.
- The goal of our rating framework is to show investors potential rating criteria that can be used to evaluate P2P lending platforms.
- If we encounter poor results when completing our due diligence on a platform, this will be reflected in the overall score of the platform (which will decrease significantly).
- The actual experience of investing on a particular platform differs with every investor, and our reviews should only be considered as our experience or result of our research with the platform.
- Our rating process does not take the risk connected to loan originators into consideration .
- While we invest on many platforms ourselves we don't invest on all of the platforms that are mentioned on our website as some of the platforms don’t offer investment products that would align with our investment strategy.
The first two bits of data we look at when completing a platform’s due diligence are the investment type and the protection scheme. To simplify this process, we’ve determined the top five most common investment types and five different protection schemes amongst European P2P lending sites.
See our results in the table below:
|Investment Type||Protection Schemes|
|1. Short-term loans||1. Buyback|
|2. Consumer loans||2. Mortgage|
|3. Business loans||3. Commercial collateral|
|4. Real estate loans||4. Personal guarantee|
|5. Rental||5. Provision fund|
Note that you can also invest in loans that aren’t secured by any protection scheme.
Every investment type can have one or multiple protection schemes, which have an impact on the flexibility, rentability and security of your P2P lending portfolio.
We will address each investment type in a dedicated article so you can learn more about the differences. Head over to our P2P lending academy to find out more.
After we get an overview of the types of investments the platform we’re reviewing offers, we head over to the statistics.
We look at the following stats which will give us more information about the past performance of the platform:
- Average interest
- Investors’ earnings
- Total loan volume
- Number of currently registered users
- Average portfolio size
- Default rate
And then, we will typically compare the statistics with similar P2P lending sites.
While analyzing the stats, we also have a look at the platform’s cashback offers. Obviously, cashback isn’t the most important metric to look at, but it can influence the returns of your investment, particularly if the platform offers a VIP bonus for loyal investors.
When assessing cashback, we look at the following:
- Is there a cashback bonus for new investors?
- Does the platform offer a cashback bonus for active investors?
- Are there monthly cashback promotions?
The safety of your P2P investments is the most important factor for any P2P investor, which is why we have a set of data points we tend to look at when evaluating the protection of our investments.
In order to ensure the reliability of our reviews, and impart this knowledge now, we’ve defined a list of factors to evaluate the protection for every individual type of investment.
To simplify this process, we have determined three different groups.
1. Consumer & Short-Term Loans
When looking at consumer and short-term loans, we check off the points on the list below, to ensure the correct protection is in place:
- The platform offers a buyback guarantee
- The length of the buyback period is clear
- A buyback is provided by the platform
- A buyback is provided by the loan originator
- The buyback also covers loan principal
- Buyback covers loan principal and accrued interest
- Buyback covers accrued interest and late payment fee
- Buyback is extended by a group guarantee
Short-term and consumer loans tend to be backed by a buyback guarantee. Every buyback guarantee has different terms and the above mentioned list will help us to better understand the protection the buyback guarantee is offering.
2. Business Loans
When completing due diligence and researching for our platform reviews, we evaluate the protection of business loans using the following list:
- The platform offers a buyback guarantee backed by the platform or loan originator
- Investments are secured by collateral
- The company managing the collateral is legitimate
- The platform offers a provision/buyback fund
- The platform does its due diligence in-house
- Platform outsources the due diligence to partners
- The platform uses real photos to represent companies or projects that are offered for funding
The protection scheme that comes with business loans differs with every platform. The above listed points help us to understand the protection that comes with our P2B investments.
3. Real Estate Loans and Rental Contracts
When looking into real estate loans, we look the following protection:
- Who manages the collateral?
- Max. LTV is not higher than 75%
- Average LTV is below 60%
- The platform accepts 1st rank mortgage
- The platform accepts 2nd rank mortgage
- The platform accepts 3rd rank mortgage
- Due Diligence of the property/business project is done in-house
- SPV overviews and annual reports are provided to the investors
- Land registry documents are provided to the investors
- An interactive overview of the property (video / virtual tour) is provided to the user
- Who evaluates the property? (it can be either the platform itself or a licenced real estate company)
Similarly to business loans, investors can look at a variety of factors when investing in real estate projects. The above mentioned points are just a few things to get an impression about the protection of your investment.
These are some of the information that help us evaluate the protection based on various business models and loan types.
Many P2P lending sites operate in unregulated markets. The market regulations have an impact on the data platforms share with other investors. Here is a list of factors we look at when evaluating the transparency of any P2P lending site:
- That annual platform reports are published on the website
- That these annual reports are audited
- That annual reports of the loan originators are published on the website
- The platform has an actual office where investors can visit (not just a virtual address)
- That statistics are presented on the platform
- The CEO is introduced on the website
- The team is introduced on the website
- The platform is active on social media - groups or business page (at least one post per week)
- Address and contact information is presented on the platform
- Owners are mentioned on the platform
- CEO and key employees have a LinkedIn profile
- All loan originators are publicly listed on the platform
- There is additional information about the loan originators (or borrowers) and financial reports on the platform
- Terms and conditions are written in English, and these are available before signing up (loan agreement (template) and user terms)
- Terms and conditions (which are written in English) are available after signing up (loan agreement (template) and user terms)
- The investor has access to individual loan agreements
- Regulated by a financial institution
- E-money license/investment brokerage license
The best thing about this list is that you can find all the important information within a few minutes. In most cases, you don’t even need to leave the platform’s website.
Background Check: Team and T&Cs
How the platform presents itself is one thing, but whether all the claims are accurate is another entirely, which is why we highly recommend doing your own due diligence about the platform’s team and their terms and conditions.
And this is what you should be looking for:
- The legal address is also the company’s HQ
- All investors’ funds are stored in segregated bank accounts (and platform does not have the right to use them without the agreement from the investor)
- The platform’s terms and conditions cannot be changed without notice
- The platform's bank account is located in the country that the platform is registered in
- The terms and conditions are clear and comprehensive
These are the basics that any investor should be familiar with, however, due to fraudulent behaviour in the P2P lending space, we have come up with additional data that will help you to lower the risk of being scammed.
Signs That the Platform is a Scam:
- A lawsuit has been initiated against the platform
- Recent changes in the platform’s terms and conditions
- Suspicious information about the platform’s key employees
- There has been a recent limitation in product offering
- Investors have exposed fake projects
- Recent problems or unexplained delay with withdrawals
- The platform fails to answer critical questions
- The buyback guarantee is offered by a third-party
- There have been changes to the platform’s management team in the last three months
Of course, changes in management do not always result in scams, however, in the past, management changes have led to fraudulent behaviors, which is why you should be extremely cautious should this occur.
There is no guarantee that existence of the above will result in platform scams. But, if you can confirm that a platform you’re investing on has three or more points from the list in this section, we would recommend that you seriously consider exiting your investments, and with haste.
To learn more about how to not get scammed, read our comprehensive guide about P2P lending scams.
Or, if you feel confident that the platform you’ve invested on is able to protect your money, continue to the next step: usability.
Want to invest your money on a platform that isn’t intuitive or up to date with the latest technologies? We didn’t think so… After all, time is money, and you certainly don’t want to spend your time reporting glitches on the website to the support team.
Checking off this list will help you avoid platforms with poor usability:
- Platform’s design is up to date
- The platform has enough loans available
- Platform’s webcopy (and translated versions of) is on point, with no grammar errors
- Users have access to advanced statistics that reveal information about the loans on the platform
- The platform has an auto invest tool
- Investors can view all of their current transactions (and download tax reports)
- The platform does not withhold taxes for investments in certain countries
- The platform has two-factor authentication
- There’s a mobile app and desktop version
- Deposits and withdrawals are processed within three business days
- Registration is fast but thorough
You can also have a look at the minimum investment amount. If your goal is to build a well diversified portfolio with a small investment amount, you should start investing on a platform where you can invest €5 or €10 in one single loan.
When investors complete due diligence, liquidity is often the most underrated category, and one that is not looked into as thoroughly as others. However, in times like the COVID-19 outbreak, liquidity is extremely important. Have a look at the following criteria to ensure you are able to withdraw your investments in the expected time:
- The platform has a secondary market
- Investors have time to sell the investment during normal market conditions
- Investments can be sold without discounting the price during normal market conditions
- Instant withdrawals are available
Once you’ve checked off all of the above, have a think about the following before investing:
- Is there a fee for use of the secondary market? Ideally not.
- Is there a fee for instant withdrawals? This is important because, should you be losing money on your investment and want to withdraw, the addition of a withdrawal fee could amount to a large sum of your remaining investment amount
- What is the average loan term?
You won’t be able to retrieve some of this information if you haven’t invested your money in the platform yet. Yet to invest? Head over to our P2P lending reviews where you will likely find all the data you need.
Customer support is probably the most subjective category. Every investor will have a different experience based on their individual needs and therefore will use and experience the customer support differently.
Here are a few factors that we look at when evaluating the support of a P2P investment platform:
- Whether the company is engaged on social media - typically, more action means they’re more likely to be responsive!
- Whether they have a live chat function
- Whether the platform has an extensive FAQ section
- If they have a blog, for which they use to educate their investors
- Response time (this one involves contacting the platform with a query and waiting to see how long it takes them to respond)
- Response quality (measuring how helpful their response is)
- We also check to see if the platform sends high-value emails to its users to inform them about the latest news
What We have Learned...
After reviewing more than 30 P2P platforms we have got a very good overview of the industry, and we’ve put our learnings into content which you now have free access to!
But, if we had to give you a brief summary of what we’ve learned when reviewing P2P lending sites, here’s what we’d say:
It’s not uncommon that platforms won’t even come back to us when we have questions about their sites. This is especially the case when we start asking delinquent questions.
That being said, some platforms are eager to collaborate and improve the transparency in the P2P lending space, which we and other investors greatly appreciate.
The creation of each review takes at least several hours and, in most cases, even days as we have to follow-up with the platforms if some of the information isn’t clear.
If you want to support our work, head over to our Facebook and Twitter profiles and hit that ‘Follow’ or ‘Like’ button to get notifications about the latest news from the industry.
Disclaimer: You should know that our ratings are dynamic. We aim to adapt every review to this review framework according to the data we have access to. Fact is, however, that the P2P lending space is changing very fast and sometimes we are not able to update all the information in time. Use our P2P lending reviews as one of many resources to expand your knowledge about individual P2P lending sites.