The list does not represent the complete set of information on which investors should base their investment decision. Prior to making any investment in P2P loans investors should ensure they fully understand all the risks of making investments in P2P loans including, but not limited to, the risk that part of all capital invested may be lost. Investors should also consult with their financial, tax and legal advisors. Investing in P2P loans should represent only a portion of an investor’s overall portfolio and does not represent a complete investment program. This list is for informational purposes only and does not constitute an offer of investment advisory services or a solicitation of investment. This list was published 22 May 2014.

What are P2P loans?

P2P loans are loans that are intermediated between investors and borrowers. The intermediary is called a P2P lender.

Do P2P borrowers provide collateral?

In many cases, for example in the case of general purpose business loans, borrowers provide no collateral. Business owners often are required to provide a personal guarantee so that if the business fails the owner is still responsible to make loan payments. Unsecured loans typically pay relatively high rates of interest in order to attract investors. The P2P sector is growing quickly and some lenders offer borrowers the opportunity to provide collateral such as real estate, automobiles and manufacturing equipment. Collateralised loans pay lower rates of interest.

Who are the borrowers?

Borrowers are small and medium sized businesses.

What makes P2P loans a safe investment?

Statistics from the largest and most reputable P2P lenders show the vast majority of borrowers have repaid their loans in full and on time. This is because P2P lenders, like banks and finance companies, have certain criteria borrowers must meet in order to obtain loans.

Are P2P loans guaranteed?

P2P loans are usually not guaranteed. Some P2P lenders establish reserve capital to compensate investors in case loans default. However, there is no assurance that even this additional safeguard will be enough to prevent investors from losing part or all of their capital invested.

How do P2P lenders ensure investors earn money?

P2P lenders have many procedures. First, they do background checks on the borrowers. Second, they set lending criteria. They often require that borrowers have a demonstrated history of repaying their loans. They also can require the borrowers have monthly income to make the required payments. Many lenders require verification of borrower data and proof of income. Many lenders also give each borrower a credit score that indicates how credit worthy the borrower is. Some lenders require borrowers to maintain payment protection insurance that that makes the monthly payments in case the borrower becomes unemployed, gets sick or loses his job.

What rates of interest do borrowers pay?

Borrowers usually pay rates of interest ranging from 6% to 30%. The interest rate depends upon several factors. Borrowers with high credit scores usually borrow at lower rates of interest than borrowers who have low credit scores.

What rates of interest do investors earn?

Investors usually earn between 4% and 20%.

What determines how much investors earn?

Investors who select only the highest quality, potentially safest loans usually earn lower rates of interest. Investors who select riskier loans can earn higher rates of interest. Also, investors who select loans with longer terms to maturity usually get higher rates than investors who select loans with shorter terms to maturity.

Do the borrowers and lenders know each other?

In the case of personal loans the largest and most reputable P2P lending sites ensure the identities of the investors and the borrowers are kept strictly confidential. Lenders focusing on business loans tend to encourage the borrowers to reveal their identity so that investors can know more about the businesses they are investing in.

How do investors collect the principal and interest?

P2P lenders do all the work of servicing the loan. Borrowers pay the P2P lender the same as they would pay a bank or finance company. Investors can choose either to receive payments of principal and interest or to reinvest in new loans.