The beginner mistakes with P2P loans you should avoid

The beginner mistakes with P2P loans you should avoid

It is easy to make mistakes as a beginner but it is a part of the learning process and therefore something natural. Normally. Because making mistakes in terms of finances and your money could turn out to be quite dangerous hence why we put together the 5 worst mistakes you could possibly make with P2P loans.

If you are interested in finances and more than these mistakes check out this guide to P2P lending.

Mistake 1: You are ignoring obvious warning signals

You can avoid mistakes by choosing the right P2P platform if you do a thorough research on its reliability. An obvious question is whether the address given at the imprint exists on google. Besides there are more points you have to be careful about:

How does the platform warn you of risks concerning P2P loans?

P2P loans are risky investments because of their asset class. But a few providers try to sell their services by trying to come off as risk free. Here arises an important question if these statements are reliable, therefore make sure to check the platform´s reviews. In conclusion if a platform really does promise risk free or low risk service be wary.

Take a good look at the platform’s team

The P2P platform´s team can provide an indication of how reliable the platform really is. For example, take a look at how the founder´s team presents itself. Do they convey a cheesy or a serious image? It could turn out to be worthwhile to briefly google the names of the most important team members. Maybe you will notice how the managing director has no experience with finances and if that is the case there might be something wrong with the platform.

Pay attention to the partners of the platform

The working method of the platform can be judged according to its partners. Definitely check out which lenders loan their credits. Another indication of the platform´s reputation is the changing bank account. This could indicate difficulties with the banks. And a  rejection from is never a good sign.

Our tip: Take a close look at the platform and check thoroughly their reputation and reliability. If you notice any obvious flaws, keep a distance.

Mistake 2: You are tempted by high returns

Returns over 20% are certainly a temptation and any investor would be happy about such returns, especially if they were risk free. But reality sadly looks different.

Therefore, do not be lured in by high returns because they can tempt you to stop looking too closely. For example, the Envestio platform attracted its investors with high returns and afterwards went underground with all the money.

The past has shown that reliable platforms do not exceed 12 % – 14 % p.a. in the medium and long term. The offer of higher returns goes hand in hand with higher risks. This is mostly shown by a lack of transparency.

Our tip: If you notice higher returns at a platform, remember they go hand in hand with high risks. The platform should be able to justify higher returns than 14 % p.a.

Mistake 3: You are using the platform’s reset strategies

Have you asked yourself the question what P2P platforms want to achieve? The answer is relatively easy. The platforms aim to sell as many loans as possible since it´s the core of their business.

The preset strategies you will find as an investor at the platforms are directed at achieving their core business. Therefore, they are sometimes marginal and barely benefit the investor.

If you e.g., choose, a preset strategy which promises high returns you are about to invest in long term loans and bad rankings. Often loans move in restricted areas which a rational investor would still accept. But better choice would be to avoid e.g., credits with the longest terms and the worst ratings.

Our tip: Even if the preset strategies are the easier choice, creating your own investment strategies is safer and may turn out to be more beneficial in the long run.

Mistake 4: You set the auto invest completely wrong

A common mistake beginners make, is they often do not set the auto invest function properly. Like preset strategies you should not just take over preset auto invest function and portfolios, rather adapt the settings to your investment goals.

Maybe you are asking yourself right now: “How do I do that?” It may seem like a big obstacle for beginners but it’s actually quite simple.

First ask yourself how long you can abstain from money and take that into account while adjusting the settings. Long terms are e.g., a hindrance if you want to make quick money. Moreover, make sure to spread your loans into as many as possible and invest only small amounts per loan.

In this context no country should make up a large percentage of your portfolio. A simple rule for you to remember is no country should make up more than 25 % of your investment, which usually corresponds to at least 4 countries. 

If loans are brokered through loan originators you should make sure only one credit constitutes 10 % – 15 % of your total investment. That equates to 7 to 8 loan providers

Our tip: Adjust the settings to your likings to meet your investment goals

Mistake 5: You blindly trust repurchase guarantees

One of the most common mistakes is to blindly trust repurchase guarantees. Because something like this will happen: You become careless and no longer thoroughly check your loans. Consequently, you invest in all loans without thinking about their returns, term, or quality.

You might have already noticed how this attitude isn´t fit if you want to be successful in investing with P2P loans in the long term.

In addition, there is another problem many do not consider: The repurchase guarantee depends on the credit worthiness of the loan originator. That means your money will be lost if your loan originator goes bankrupt. Two good examples of failing loan initiators are the bankruptcies of Eurocent and Aforti on the P2P platform Mintos.

Our tip: Do not rely on repurchase guarantees and invest specifically in P2P loans from which you can expect sustainable returns.


Now you know the 5 worst mistakes a beginner could make:

  • Ignoring warning signals, e.g. promise of risk free service, unreliable team with no knowledge in finances
  • tempted by high returns are usually joined by a high rate of risk
  • using the preset strategies are barely beneficial
  • setting auto invest wrong, rather adjust the settings to your own goals
  • blindly trusting repurchase guarantees is careless and dangerous

Hopefully you can make good use of your newfound knowledge and good luck with investing in P2P loans!

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