How to check how ‘safe’ your P2P lending platform is
All types of investing have their own risks but there are ways you can invest in peer-to-peer loans more safely.
The mainstream media often obsesses over P2P platform failures but there are plenty of established players that are regularly giving investors a decent rate of return.
Here is how to check how safe a P2P lending platform is.
Regulation
All P2P lenders operating in the UK must be regulated by the Financial Conduct Authority (FCA).
You can see if a P2P lender is regulated by checking the FCA register on the City watchdog’s website.
A platform’s listing may also show any restrictions on its activity and the type of loans it can facilitate.
Wind-down plans
As part of being regulated, all platform must have a wind-down plan in place.
Many of these are available on a P2P lender’s website and they detail what happens if a platform collapses.
Knowing there is a plan in place can provide an investor with reassurance that they will know where their money is and who is handling it if things go wrong.
Read more: How to address inflation in your P2P portfolio
Platform experience
Check the ‘about us’ page of a P2P lender to get a sense of the background of a platform’s founders and staff.
Check how much experience they have in areas such as P2P lending, assessing loans and recoveries.
Statistics
Historical performance is no guarantee of future returns but it can give an indication of a platform’s lending policies and how loans will fare.
You can usually find P2P platform statistics on a lender’s website but you may need to register.
The data will typically show you the total loanbook size, value of new loans, the expected and actual default rate and target and actual returns.
Read more: How to do your due diligence on a P2P platform
P2P analysis
Obviously, Peer2Peer Finance News is a reliable and independent source of information about platform performance.
P2P analyst 4th Way also regularly rates and publishes reviews about P2P lenders.
Its own analysis of platform safety considers factors including transparency, type of loans, the proportion that are late paying, recovery rates, performance during bad economic times and at least a four-year track record.
It also suggests that the people behind a platform should have the necessary banking skills and a minimum five years’ experience, including going through at least a minor recession.
As with all investment, P2P investors can also protect themselves to some extent by diversifying across different loans and platforms.
Read more: Should P2P investors worry about Bank of England base rate rises?
