Investing in loans between individuals with P2P lending? Everything you need to know

p2p lending

What is a loan between individuals, what earning opportunities does P2P lending offer and how to make your loan low-risk


When we talk about loans between individuals or P2P we are referring to an alternative credit mechanism that has created numerous earning opportunities for investors and as many financing opportunities for applicants. 

There are different types of loans between individuals, but the one on which you should focus, if you are looking for new earning opportunities, is that of  lending crowdfunding . In the next paragraphs we will try, in fact, to explain to you first of all, everything you need to know about loans between individuals and finally we will illustrate all the advantages you can get by investing in P2P lending.

There is a common denominator that belongs to the different forms of loans between individuals : by adopting this alternative line of credit there is no need to go to the bank to obtain a loan .

However, there is another piece of information that might really interest you as an investor.  With P2P lending you can receive higher interest than those granted by a traditional financial institution . The reason why? Since there is no bank as an intermediary, the costs are very low or even zero.


Loans between individuals: what are they?

Loans between individuals are all those loans that are not granted by banks, credit institutions or financial companies, but come from other lenders, ordinary people .

Here is a practical example of a loan between individuals . Your uncle or a friend may need a loan at a certain time to meet financial contingencies. The loan that you will donate to them translates into a loan between individuals.

By its nature, a loan between individuals has a purely social and solidarity character since it allows a particular financial request to be resolved promptly.

Although it may sound like something informal, the loan between individuals must be formalized by contract , above all to protect the lender and the applicant . This, to be precise, is mandatory when the loan amount is substantial. Contracts can be entered into in the form of a private agreement or a financial contract.

The 3 different forms of loans between individuals

  • Loans between individuals with private writing . In the contract stipulated for the loan between individuals with private writing, it must be made clear that it is a detailed financial transaction (which does not take place systematically).

Furthermore, even if the intervention of a notary is not necessary, the assistance of a lawyer is recommended in the case of large sums. As regards the content, the information that must be reported in the contract are: the personal data of the beneficiary and the donor, the amount of the loan, the date on which the contract is signed, the duration of the loan and the repayment terms.

•     Loan between individuals with bills of exchange . This credit instrument is very suitable for all so-called“Bad payers” , registered in the Crif Register. The Central Financial Risks is the company that manages credit information on loans granted by all Italian banks for monitoring financial risk. The loan is defined as changed because it requires the signature of the applicant for some bills . This formula is recognized for its flexibility and renewability, as it is possible to extend terms and conditions at any time.

•    Peer-to-peer Lending or Social Lending. P2P lending is an innovative system that allows you to lend your money to something / someone, investing your capital on specific web platforms. At a certain deadline, your loan will be returned to you together with the payment of interest.

Loans between individuals: is P2P Lending safe?

If you are thinking of investing in loans between individuals , the first question you asked yourself is almost certainly: are my money safe by investing in P2P crowdfunding, or do I risk losing my savings?

First of all, you must always be aware of one thing: lending your capital is still risky, in all cases. Risk , as we have reported in the many blog articles, is an unavoidable factor in investments .

But this should definitely not discourage you, as there are ways to minimize the risk of your investments. The key to successful investing is learning how to strategically manage the risk you expose yourself to.

What can help you overcome the fear of risk? The earnings you will get. With lending crowdfunding you can in fact earn interests ranging from 7% to 10% per year , a value that you will hardly get from a traditional banking institution.

Here’s how you can minimize the risk of your lending crowdfunding investment.

1. Diversify your loan

If you have decided to invest, don’t make the mistake of putting all your money into one investment. Your portfolio, on the other hand, should always be diversified, i.e. made up of multiple types of investments. The advantage? In case one of these investments fails, you will be able to fill it with the profits made by the others.

2. Allocate a sum appropriate to your financial possibilities

When you invest a sum in an investment you must always be aware that that money will no longer be available to you for a certain period of time. Therefore, it is good that you always consider your financial situation and your liquidity needs.

3. Make sure the platform where you lend your money is reliable

There are many lending crowdfunding platforms on the web and your task is to collect as much information as possible on the one that interests you most. Specifically, you just need to ask yourself these simple questions. For example: since when has the platform been active? How many loans has it already repaid and how many projects has it been able to finance? How many investors are registered?

Once you have explored every single point, you can be more confident in conducting your investment choices with awareness.

Investing in P2P lending? Choose the brick 

With lending crowdfunding you can invest in different market sectors . Real estate is the sector that is giving investors the most satisfaction in this period of crisis. 

Real estate crowdfunding has proven to be a winning tool for several reasons. First of all, the brick is a safe haven asset that is not subject to the changes in economic dynamics that occur in periods of financial uncertainty . If you are interested in knowing the other reasons why investing in real estate is worthwhile in times of crisis, read our article Real estate crowdfunding in times of crisis is less risky: here’s why .

To date, our platform covers approximately40% of the entire real estate lending crowdfunding sector and managed to raise over 14.5 million euros in 2020.

Ethical Return works in a very transparent and simple way for lenders:  it is enough to register and load your account to invest . After choosing the real estate opportunity that best suits your needs, you can decide to invest your capital in several operations to diversify your portfolio and, at the end of the period established for the development of the operations, you will get the loaned capital plus interest.

Unlike equity crowdfunding, we remind you that you are in no way linked to the proposing company and therefore you will not have to wait to get your profit when the company is liquidated. 

In addition, with our formula  “Interest regardless” you will be entitled to the same earnings even if the transaction is concluded in less time.

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