P2P lending stands for peer-to-peer lending, which is one form of high-risk investment.
You can lend certain amounts to borrowers, which can range from SMEs to individual projects via online platforms. The goal, of course, is that the businesses or projects you lend money to would be successful, and you get returns from it.
What is peer to peer (P2P) lending?
P2P lending or crowdlending involves ordinary people lending money to other people or businesses, usually through an online platform.
It’s a win-win situation for both parties, as the lenders get to make some money in the form of interest, while the borrowers might be able to get loans more easily than going through traditional channels like banks.
What’s the difference between P2P lending and crowdfunding?
Both P2P lending and crowdfunding let you raise money by appealing to “regular people” rather than formal lending institutions.
But there is a big difference. With P2P lending, you’re borrowing money in exchange for repayment of that money with interest.
With crowdfunding, how you wish to repay your backers for the money really depends on how you’ve pitched your project and what agreement you’ve managed to come to.
Some crowdfunding platforms let you raise funds in exchange for equity in your business, which means you’re selling ownership in your business in exchange for money. On Kickstarter, people often try to raise funds for their projects by offering backers limited edition copies of their products or other freebies. You can even try to crowdfund while offering nothing in return if you have a good enough sob story.
How do you start investing with P2P lending?
If you’ve got some spare cash and are looking for ways to make it grow, lending it on P2P platforms is one way to do so.
Be warned, however, that the risks can be great as there is always the chance that the borrower will default and you’ll lose your money. In exchange, however, you’ll be able to rake in pretty high interest rates. As a high-risk, high-return way to invest, this is not something you want to throw your life savings into if you’re planning to retire tomorrow.
To start lending, you’ll first need to open an account on a P2P platform. You can then browse the various projects asking for funding, and decide who and how much you want to lend to.
7 P2P platforms in Singapore
|P2P lending platform||Fees||Default rate on loans disbursed in 2018||Minimum investment|
|Minterest||15% on interest + factoring fee + other fees earned by investors||0.68%||$50|
|Seedin||15% on every loan repayment + account management fee||0%||$1,000|
|Funding Societies||18% on interest||0%||$20|
|Capital Match||20% on interest repayments||<5%||$1,000|
|MoolahSense||1% on repayments||13.64%||$100|
|Validus||20% on returns||–||$1,000|
CoAssets offers a relatively safe way to invest in SMEs. They offer longer term loans compared to the other platforms here, which is ideal if you don’t want to have to micromanage your portfolio. They also don’t charge investors’ fees upfront, which means that you get to keep everything you earn.
The main drawback is their high minimum investment amount of $1,000, which is going to eliminate many newbies or small-time investors. Their processing time is also quite long at 45 days. All this makes them more suitable for those who are looking for (and have the cash for) big deals.
Other than a catchy name, Minterest also has a user-friendly platform, which makes it more attractive to young investors. Their minimum investment amount of $50 makes them a bit more accessible to small-time investors, and they’ve also managed to keep their default rate low.
If you’ve got enough cash to fulfil the $1,000 minimum investment requirement and are looking for an easy-to-use platform that lets you invest without having to think too much, Seedin might be the answer.
They’ve got a user-friendly interface as well as an auto-investment feature that lets you invest your funds automatically according to requirements you’ve pre-programmed ahead of time.
If you’re broke or just don’t like the idea of throwing hundreds or thousands of dollars into the unknown Funding Society is the best platform to start with as you can invest with as little as $20.
On the downside, their commission isn’t the lowest, and they do not facilitate less risky secured loans. But still, if you’re looking for a platform to get started with at a very low cost, it’s worth giving Funding Societies a try until you get the confidence to move on to a platform with a higher minimum investment amount.
Capital Match lets you lend money in unsecured short-term loans or invoice financing. These loans tend to be repaid quite quickly and can earn high returns. Conversely, this is not really the platform to go to for longer term loans.
Other than the steep $1,000 minimum investment amount, one of the main drawbacks is their higher-than-average investor fees.
MoolahSense offers one of the lower minimum investment sums around at $100. Their investors’ fees are calculated a bit differently than most other platforms—they charge you 1% of the total repayment, as opposed to a percentage of the interest. But according to their calculations that usually works out to be below the standard commission fee of 15% of interest payments.
Due to their lower commission fees, they’re probably the best platform pick if you want to start investing with a low minimum amount.
Validus is one of the big boys when it comes to P2P lending in Singapore, so if this is your first time investing, you can forget about using them, as only accredited investors need apply–for individuals, that means having assets of at least $2 million or annual income of at least $300,000.
In addition to investing a minimum of $1,000 in each borrower, you also need to maintain a portfolio of at least $50,000.
Have you ever invested on a P2P lending platform? Share your experiences in the comments!