Is Crowdlending Safe?
Investing in crowdlending carries risks, as do all investments. However, by diversifying your portfolio with alternative investments like crowdlending, you can reduce your risk and potentially achieve higher profits.
In times when stocks or bonds underperform, other asset classes such as crowdlending may perform better.
With interest rates ranging from 8-18%, crowdlending appears to be a wise supplement to stocks and bonds, particularly during periods of high inflation and economic downturns.
In order to answere the Question “is crowdlending safe”, you must consider the possible risks and how to reduce them
What are the risks in crowdlending?
The risks of crowdlending involves
- The marketplace: Is it fraudulent? Does it have a license?
- The loan originator: Is it illiquid?
- The borrower: Are loans repaid on time?
Don’t make the same mistakes as I did: learn from my experience.
There are several measures you can take to make your investments safer while still enjoying a good return.
Table of Contents
- Get the best out of crowdlending
- What I learned and valuable advise
- Investment strategies
- Conclusion: is crowdlending safe?
- Basic about security
- The war in Ukraine
Get the best out of crowdlending
I’ve had both positive and negative experiences with crowdlending, and I’d like to share them with you to prevent you from repeating the same mistakes I made.
WARNING: Avoid repeating my mistakes
I initially searched for positive reviews of reputable crowdlending marketplaces and found several endorsements for Fastinvest. I believed their claims and deposited €1,000. Since the spring of 2021, I’ve been trying to withdraw my deposit, but all I’ve received are excuses. FASTINVEST IS SCAM! I’ve now joined a Telegram group that’s preparing a lawsuit against Fastinvest. If you also have funds stuck with Fastinvest and want to join this Telegram group, please email me at Safeinvest@clearit.dk.
Another red flag should be raised when an offer seems too good to be true. This was the case with Livonia P2P: it offered one-month term loans at 20% annual interest, plus 4% immediate cashback. This would actually result in an annual interest rate of 68%, which, of course, is too good to be true. For some time, they did pay the cashback and interest, which attracted more investors. Then, they suddenly stopped all withdrawals and stopped responding to emails, phone calls, and support requests. It seems to be a Ponzi scheme.
A Ponzi scheme is a type of investment fraud where investors are promised high returns with little or no risk. The money is not invested; instead, the scammer focuses on attracting more investors. A growing number of victims is needed to pay out the supposed profits to earlier investors. Ultimately, the scammer runs off with all the invested funds.
If you also have lost money at Livonia P2P and want to join the telegram group about this fraud, you are welcome to write an email to Safeinvest@clearit.dk.
Read more about Livonia P2P here
What I learned and valuable advise
Reviewers don’t always provide honest feedback, as they aim to drive as many referrals as possible to boost their earnings.
Choosing a marketplace
- Always check Trustpilot reviews before selecting a marketplace
- You may also use Scamadviser for additional checks
- Next, verify if the marketplace holds a valid license to prevent fraud
- Some of the best Licenses are MiFID II and ESMA (Regulation on European Crowdfunding)
- On November 10th 2023, a new EU law for crowdlending providers for business (not consumers) entered into force. It increases and uniforms security for EU-based crowdlending marketplaces, that provides business loans. Read more.
Check the marketplace
- Start with a small deposit, like €20
- Withdraw €10 and invest the rest
- After receiving your withdrawal, you can consider depositing more
What is a crowdlending marketplace?
- The borrower (e.g., an individual or a business) obtains a loan from the loan originator, for instance, to purchase a car or finance their business. They pay significantly higher interest rates than what we, as small investors, receive
- Risk: The borrower may be unable to repay the loan. To deal with this risk: look for loans with a buyback guarantee ( the loan originator pays back the loan if the borrower is more than e.g. 60 days late)
- The loan originator divides these loans into smaller units and distributes them through the crowdlending marketplace
- This poses the primary risk: If the borrowers don’t repay the loans and there’s a buyback guarantee, the loan originator incurs losses. If they issue many high-risk loans, it can lead to financial problems, so they cannot fulfill the buyback guarantee, risking our investments as small investors
- The crowdlending marketplace offers investors the opportunity to purchase these smaller loans.
- Risk: The marketplace holds no obligations toward these loans. They merely distribute them. The investor’s risk arises if the marketplace turns out to be fraudulent. This is why a license is crucial, as it imposes certain obligations on the marketplace
Investment strategies
- When investing, opt for a buyback guarantee (ensuring you’re paid after typicaly two months even if the borrower doesn’t pay on time). Also, choose “current” as the loan type (excluding late loans)
- For higher liquidity, consider selecting a loan term of 1-3 months. Periodically test withdrawals
- However, avoid putting all your investments into a single crowdlending marketplace. Just like any other business, it can have its ups and downs
Simplify with autoinvest
Consider setting up an automatic investment system that invests any unallocated funds according to your criteria. This means that earned interests and repaid loans will be reinvested automatic.
Recommended settings – also for manual investments
- Country: exclude countries you don’t consider safe. For me it is Russia, Ukraine and Belarus
- Choose buyback guarantee: After typical two months, you’ll receive payment even if the borrower doesn’t pay on time – but you might lose your investment if the loan originator goes bankrupt
- Choose “current” as the loan type (excluding late loans)
- Loan originator
- Choose only those loan originators with an above-average trust score for added safety
- If you notice a loan originator with many late payments, I recomment to exclude this loan originator
- Loan term
- I believe that short loan terms generally are safer since you can stop investing in a loan originator before it experiences significant financial problems
- Short term loans also provide excellent liquidity. Most of my loans have a term of 1-3 months. In this way I don’t need a big bank saving for unespected expenses
- Long-term loans can offer a greater diversity, such as in real estate or green investments, but in general I avoid terms longer than 12 months (a lot can change over the course of a few years)
- Multiple auto invest strategies
I recommend having at least two different auto invest strategies to broaden your diversification and improve reinvestment opportunities:- Short term loans: If you want to invest 70% of your funds here, set the maximum of investment in this strategy to 80% of your funds (provides flexibility)
- Long term loans: If you want to invest 30% of your funds here, set the maximum of investment in this strategy to 40% of your funds (provides flexibility)
- Interest
- Since most loans carry higher interest rates, consider setting the minimum interest as low as 8%. The few loans with such low interest rates are often more secure and provide greater diversity
- You can set slightly higher interest rates for long-term loans, e.g., 9%.
Conclusion: Is Crowdlending Safe?
- As with any investment, avoid placing all your funds in a single crowdlending marketplace. It may go up and down in a crowdfunding marketplace – as well as in any other business
- Choose several marketplaces with these regular security checks:
- Regularly monitor Trustpilot reviews for each marketplace to ensure everything remains satisfactory
- Also do your own check: keep an eye on:
- whether the amount of late loans are increasing (the Borrower has not paid in time)
- whether the amount of pending payments are increasing (the loans has been paid, but the loan originator has not yet paid you)
- I’ve set up a monthly reminder to check late payments and Trustpilot, with direct links to each marketplace/trustpilot
- Check withdrawal once in a while
- With this little extra effort you will get a much higher return than investing in stocks. But don’t put all your investments in crowdlending: Be sure to diversify by also investing in eg. stocks, bonds and real estate. Read more about diversifying your investments here: Best safe investment strategy
Basic about security
A License minimises your risk of losing money if the crowdlending marketplace is fraud or if it goes bankrupt.
Buyback guarantee prevents you from losing money, if the borrower don´t pay back the loan.
Loan originators (Lending companies) are the real risk. If they go bankrupt, you risk losing some or all of your investments. That’s why it’s important to spread your investments to several loan originators.
Countries. Single countries may get into a crises. Most recently Russia and Ukraine, where it’s uncertain how much of the loans are to be paid back – and when. That’s why it’s important to spread your loans to several countries.
Secondary Market
- gives you the opportunity to sell loans if you need liquidity or if you have a bad feeling about the loan originator or the marketplace. I sold all my loans in Estateguru, when the reviews in Trustpilot got real bad and my loans were late
- If the marketplace doesn’t have a secondary market I recommend only to invest in short term loans
Diversity is much more important than focusing on high interest.
Don´t get greedy:
- Loans with a discount on the secondary market may be risky bad loans
- When loan originators offer a bonus, it might be because they lack liquidity and it might be a sign of a crisis
- Loans with very high interest are often more risky
The war in Ukraine
I was lucky to sell my russian and ukraine loans on the secondary market in Mintos and IUVO. But I’ve stock with some of these loans in Debitum and Peerberry, because they don´t have a secondary market. In Peerbery I have been repaid all, but It is uncertain how much and when I get my investments back from Debitum (the investment were in car leasing in Ukraine!)
That’s why it is more safe to diversify your investments to several different countries and loan originators. And also shows the benefit of a secondary market.
See my reviews and bonus offers here.
You might also be interested in:
Best safe investment strategy
