How to do your due diligence on a P2P platform
Peer-to-peer lending platforms have been reporting record inflows in recent months, which is no surprise.
Inflation is eroding away the value of cash savings, while stock market volatility has wreaked havoc on stocks and shares portfolios over the past few years.
Meanwhile, P2P platforms have a long track record of offering inflation-beating returns with minimal volatility.
But that does not mean that P2P lending is risk free.
Would-be investors must do their own due diligence before making a new investment in a P2P platform, to minimise the risk of losing money through a bad investment.
The company website
Due diligence begins with a look at the company’s store front – their website. Most P2P platforms will include key information such as when the company was founded, whether or not it is regulated by the Financial Conduct Authority (FCA), what sort of investment opportunities are being offered, and who the management team are.
If the platform specialises in a particular sector – for instance, property development loans – it is important to check for relevant experience among the company’s senior executives.
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Many platforms will also include a ‘statistics’ or ‘outcomes report’ page which will detail the past performance of different loans, along with actual annualised returns and historical default rates. While past performance is no indication of future success, investors can get a good sense of the platform’s track record by checking these figures.
External reviews
User reviews can be a valuable resource for newer P2P investors, as they offer some insight into the platform’s customer service.
TrustPilot reviews can be parsed for comments on company performance and responsivity, while more detailed information on individual loans tends to be discussed in online forums such as the P2P Independent Forum.
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Meanwhile third-party analysis and ratings from the likes of 4thWay and Defaqto can offer a deeper dive into platform performance.
Official records
Finally, the FCA’s financial services register and Companies House records can help show investors if there are any issues with the company or its directors.
The FCA keeps a record of any investigations and regulatory queries lodged against the company.
Meanwhile Companies House filings will show the past financial performance of the company, which may shine a light on the platform’s longevity.
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