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A starter question from the Crowdinform team, to get the conversation going. Share your own experience below.
P2P lending platforms show attractive interest rates. What are the main ways investors can lose money, and which risks are easy to overlook?
The main risks, from the most visible to the most overlooked:
- Borrower default: a borrower stops paying. Spreading across many loans reduces the impact of one default but does not remove it.
- Late payments and delays: money comes back later than planned, which lowers the return per year.
- Lender (originator) risk: on loan marketplaces you often buy notes backed by loans of a lending company, and your claim is against an intermediary, not the borrower. If that lending company gets into trouble, payments to investors can be affected, and its buyback promise is only as strong as its finances.
- Platform risk: the platform itself can close.
- Liquidity: money is usually locked in until the loans are repaid; selling early may be impossible or at a discount.
- Returns below the offer rate: the rate shown is what the borrower or lender promises, not what investors end up receiving.
P2P loans are not bank deposits and are not covered by deposit guarantees. Capital is at risk: crowdfunding investments are not covered by deposit guarantee schemes, can lose part or all of their value, and may be hard to sell before the end of their term.
Drafted with AI from the sources below and checked by Crowdinform. General information, not investment advice. Capital at risk.
Sources: crowdinform.com/en/articles/what-is-crowdfunding · crowdinform.com/en/articles/is-it-correct-to-call-platforms… · crowdinform.com/en/articles/peer-to-peer-marketplaces-how-t…
The risk I see most often underestimated is not a single borrower defaulting but the lender or the platform in the middle running into trouble. Borrower defaults are spread across many loans; a failing lender affects all of its loans at once. That is why I look at who stands between me and the borrower, how strong that company is, and how much of my money depends on it. Capital is at risk: crowdfunding investments are not covered by deposit guarantee schemes, can lose part or all of their value, and may be hard to sell before the end of their term.