Table of contents
1. What is Crowdlending investment
Crowdlending (or P2P lending) is an investment method where investors co-finance projects by lending money to the project owners in return for interests (e.g. buying an apartment, financing a company). It can generate an average ROI of 12-14% per year. This method allows investors to access large investments that they would’t be able to do alone (view Wikipedia).
To understand better how these investments work, here is an example of a concrete case:
This example is a real estate investment opportunity. The owner of this project needs to get money to finance the construction of a new residential building (it’s called a real estate development loan). From the project description, you can see that 986 investors financed this project of 300’000 EUR. For instance, if you are part of this crowdlending project you could have invested for example 1’000 EUR in it.
In addition, we can also read that this investment will generate a 15.58% yearly interest rate and will last 9 months. So in this case, you would have earned 116.85 EUR of interests over a 9-month period (which is 15.58% over 9 months) by investing 1’000 EUR. At the end of this investment term of 9 months, you will receive back all your investment money in addition to the interests.
2. The Crowdlending market
Before starting the discussion about how to invest, let’s just take a look at the trend of this investment method. This type of investment started around 2011 and is getting more and more popular over the years.
The total transactions value of the worldwide Crowdlending market in 2019 are estimated to €160’111 million (an increase of 31% compared to 2018)
The total transaction value is expected to show an annual growth rate from 2019 to 2023 of 12.6% resulting in the total amount of €257’000 million by 2023.
Fig. Evolution of the total Transaction of the Crowdlending worldwide market (source)
3. Advantages of Crowdlending investment
This alternative investment method holds a lot of advantages such as investments possibilities, flexibility, and risks:
- Some platforms allow you to invest starting with a small amount such as 1 EUR (but the minimum market average is 10 EUR)
- Spread risk between multiple investments (the typical minimum amount per investment is only 10 EUR) and multiple platforms (this is why it is advised to open investment accounts on 5-10 platforms)
- Spread the risk by investing across multiple countries (common now in Europe: Estonia, Latvia, Portugal, Spain, Italy, Finland)
- Invest with flexible/short term duration starting from 10 days to 1-2 years
- Access to big investments with small capital (it is possible to invest in a project bigger than 2-3 M EUR even with 10 EUR in your pocket)
- Many platforms also offer you a starting bonus when you register (e.g. 1% cashback on your investments of the first 3 months, 10 EUR at signup)
4. Types of investments
There are two main types of crowdlending investments:
Reward-based Crowdlending: people invest in exchange for a reward (e.g. return of interests, dividends), but the investors won’t own any shares of the investment. They will act as a bank and lend money to borrowers,
Equity-based Crowdlending: people invest to become shareholders of the company they invest in. The income of this type of investments in mostly related to the success of the project (returns are not fixed and can highly vary depending on the success of the project invested in.
In the next part of this explanation, we will focus on Reward-based as it is the simplest way to start investing without the need for any specific knowledge.
5. Fields of investments
There are 3 main categories of investment fields that you will be able able to invest-in: business loans, real estate, and consumer loans.
|Business loans||Real estate loans||Consumer loans|
Here are some examples of investments that you can find on reward-based platforms:
Business loans: invest in projects of businesses and companies (e.g. crypto-currency farm, restaurant, consumer goods business, startup company). These investments usually go from 50’000 EUR to 1 M EUR.
Real estate loans: invest in real estate project which can be separated in 3 categories: new real-estate development loan (finance a loan to build a new building that will then be sold), buy-to-resell loan (e.g. buy an apartment, renovate it, resell it and make income on the plus-value), buy-to-rent loan (e.g. buy an apartment, renovate it, rent it make income on rental income). These investments usually go from 100’000 EUR to 5 M EUR.
Consumer loans: invest in personal loans for private people like micro-loans, car loans, short-term loans. These loans are usually used by people to use consumer products and do small spending such as buying a car. These investments usually go from 200 EUR to 20’000 EUR.
6. Return on investment (ROI)
Each investment platform has its own ROI and risks. Therefore it is advised to invest in multiple platforms (at least 5) to diversify investments and spread risks
|You can expect a return on investment of around 14% per year.|
Platforms can be split into 3-risk/return categories:
- Low-risk platforms: 4% to 10% return per year (ROI)
- Medium-risk platforms: 10% to 14% return per year (ROI)
- Higher-risk platforms: 14% to 20% return per year (ROI)
Below you will find a chart of the risk vs the return of our top selection of investment platforms. After reading this page you can check our ranking of the top platforms.
Below you will find a chart of the expected yearly returns of the main reward-based Crowdlending platforms (the return rates are based on the real current investments available in 2019 on these platforms, and are NOT based on the marketing numbers advertised on the platforms’ websites)
7. When should you start investing
|As early as possible (for example by investing 10’000 EUR at a return of 14%, you will have 500’000 EUR after 30 years)|
Do you know about compound interests? It is the accumulated increase of interests that you get when you reinvest all the interests generated by your previous investments.
For example, if you invest 10’000 EUR at a 14% yearly return, this is how will be the evolution of your assets over the years:
- at year 0: 10’000 EUR
- 1 year after: 11’400 EUR (= +1’400 EUR)
- 2 years after: 12’996 EUR (= +1’596 EUR)
- 3 years after: 14’815 EUR (= +1’819 EUR)
- 10 years after: 37’072 EUR
- 20 years after: 137’435 EUR
- 30 years after: 509’501 EUR
This means that you can earn 16’650 EUR per year over 30 years by investing only 10’000 EUR.
The table below illustrates the evolution of your assets over 30 years. By investing 10’000 EUR at 14% you will end-up with 510’000 EUR after 30 years. Therefore if you are in your 20’s and 30’s, it is the perfect moment to invest a small sum that will create a big capital over the years.
8. How works a crowdlending platform
To invest, you will have to use external platforms. On the market, you can find hundreds of them. They have their own specialties such as the type of investments, the fields of investments, the returns (ROI), the risk, etc… (Later in this article we will advise you on the best platforms to use based on your investor needs).
But even if each platform has her own specialties, they still follow the same general working process represented on the image below.
Here are the details and tips about the different steps of the process:
Create your platform account (takes 5 min)
Your account will be registered directly on the external platform. During registration, you will have to provide information such as Name, Email, Phone, ID picture. In addition, in most of the platforms, it is also possible to open Business accounts if you invest through a company.
Deposit money to invest (takes 5 min)
After that, once your account is created, the next step is to send money to load your platform account. Transfers are usually done via bank transfer and in Europe and take usually 2-3 business days to go from your bank account to the platform account. Our advice is to send a small amount the first time (e.g. 10 EUR) to be sure that the transfer works and then to send the real big amount to invest. Also, investments are mainly done in Euro, so if you are investing from a non-euro country or if you own money in a foreign currency, here is an article on currency exchange at low fees.
Choose a project to invest (time varies)
The platform will propose you a big list of investments. They will usually provide you information such as the return on investment (ROI), investment term/duration, lender information, type of investment, risk, country of investment.
Decide how much to invest/lend (takes 1 min)
Once you have chosen the investment, you just need to select how much money to invest. A good practice is to invest the smallest amount as possible on each investment (usual minimum of 10 EUR) and to diversify your money on many investments. So if you invest 1’000 EUR you will be able to invest in 100 loans of 10 EUR which will help you to highly spread the risk among different borrowers.
Invest in the project with other investors (takes 1 min)
Finally, validate your selected investment amount. At this point, you will be part of the investment and will have financed a big project (sometimes >2-3 M EUR) in collaboration with thousands of other investors. This is the part that is called Crowdlending (or P2P lending, Peer to Peer lending) investment. When you do an investment, you will usually be bound to the borrowed by a contract. The investment platform is just an intermediary. Thus if the website fails and closes, legally you should be able to continue the investments and retrieve your money at the end of the contract term.
Earn monthly interests
When you invest your money in a project, the project description gives you information about interests repayments. Some loans have a very short term of a few days and other will last months. For the short term loans (few days) you will usually get your interests at the full repayment of the loan, while if the investment in on a longer-term (multiple months) you will usually get interests monthly. (Since these investments generate from 12-14% on average, you should be able to get returns on your invested money of 1% per months).
9. How to start investing
We summarized the list of the top Crowdlending platforms to invest in 2019. You can find information about: returns on investment (ROI), minimum investments amounts, if the platform gives you back your investment in case the borrower doesn’t (BuyBack Guarantee) and the fields of investment.
|Start investing in Crowdlending: Select the best platform|