When it comes to choosing the best crowdlending platform to invest in or borrow from, there are quite a number of basic things you need to consider. One of the biggest mistakes you will make is to jump on just any platform to offer loans simply because you stand a chance to get a higher interest without doing your due diligence first.
The danger of choosing a wrong crowdlending platform is that you might end up settling your case in court. The rule of thumb in any investment is to only invest an amount that you can afford to risk.
As the popularity of crowdlending grows among borrowers, it is also growing among lenders. As a result, there’s an urgent need to carefully choose a reliable crowdlending platform that will guarantee a good return on investment. In our previous article, we discussed how crowdlending works.
In this article, you will learn the following:
- The definition of crowdlending
- Reasons why you should use crowdlending as a small business owner
- Mistakes to avoid when using a peer-to-peer platform
- The growth rate of the crowdlending sector in Europe
- Factors to look for when selecting a crowdfunding platform
- What to do if your credit application is declined
Before we proceed to discuss what to consider when selecting a perfect peer-to-peer lending platform, let’s look at the definition of crowdlending.
What is Crowdlending?
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Crowdlending is also known as peer-to-peer lending. It is often abbreviated as P2P lending. It falls under one of the five categories of crowdfunding that involves the practice of lending money to individuals or businesses through online services that match lenders with borrowers.
It is so well-organized in such a manner that it doesn’t require the influence of banks. P2P loans are different from bank loans.
A lot of small businesses in developed countries like the United States, New Zealand, the UK, Canada and Australia are beginning to think outside the bank when they need funding for their business. This new development has given rise to the growth of crowlending in the last few years.
According to Statista, the transaction value in the Crowdlending (Business) segment is projected to reach US$206,120.7m in 2020 and US$297,631.7m by 2024 – that is an annual growth of 9.6%.
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The European P2P lending market had been growing by about 42% year-over-year since 2016. Analysts believe that the European peer-to-peer lending market will reach €6.2bn in volume in 2021 despite the impact of the global pandemic.
Most crowdlending loans are used by borrowers for consumer needs, car purchases, real estate property purchases and for business expansion.
Reasons Why You Should Start Using Crowdlending Platform
Like we said earlier, the growth of P2P lending is not dropping anytime soon, hence the need to embrace it if you are seeking easy loans to finance your business, buy a home, a car or take care of an urgent family need.
Here are exciting reasons why you should consider using crowdlending platforms:
- Crowdlending platforms are not influenced by banks.
- It is super-easy to access loans from a P2P lending group.
- Accessing loans from a crowdlending platform in the United States gives you the opportunity to connect with your community or individuals who are passionate about your business growth.
- An amazing opportunity to share your small business story awaits you any time you apply for a loan from a crowdlending organization.
- The best peer-to-peer lending platforms can help you overcome the dangers of equity investment which often results in you giving up your business vision.
The ability to lend your money yourself to whoever you are pleased with their intent is one of the good reasons why you should consider using crowdlending. Let’s say you know someone that needs a car loan, you can help put a smile on their face by loaning them some money for specific interest in return.
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If your credit (crowdlending loan) application is turned down, the first thing to do is to contact the lender to know why he or declined your application. Some of them might be willing to tell you.
One mistake you must not make when your crowdlending application is declined is rushing to re-apply with another account. This is because of two reasons: firstly, they will assume that you are desperate and secondly, it will definitely appear in your credit record, thereby limiting your chances of getting credit in the future.
Now, let’s look at what you should look out for when you want to select a crowdlending platform.
3 Things to Consider When Choosing a Crowdlending Platform
While there are regulations guiding the establishment of crowdfunding companies in the UK, the United States and other developed countries, it is also important to look out for some obvious factors before deciding whether you should lend through or borrow from a particular P2P lending platform.
Here are factors to consider before settling with a crowdfunding platform:
1. What is the size of the platform?
How long a company has been in business has a lot to tell about its integrity. Big brand crowdlending companies obviously came to such a point because a lot of investors and borrowers have tested, trusted and proven them to be very effective.
A reliable platform is not in a haste to offer unbelievable interest rates to lure investors and borrowers because they are old enough in the business of crowdfunding to know what the best industry interest rate should be that will favour both the platform itself, the investors and the borrowers.
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2. How effective is their customer service?
The fact that crowdfunding is built on trust is an indication that it is also ripe for scams. But how the customer service unit of your platform handles complaints will determine if more people will use it again or not.
Poor customer service is an indication that a P2P lending platform may not be around for too long, so lending money through them is a huge risk. Prompt response to customer’s complaints is a very important approach to satisfying your users.
You can hire dedicated virtual receptionists in different time zones to handle all your call answering so that someone will be ever-ready to attend to your users any time of the day they call. A P2P lending platform that doesn’t pick their calls nor respond to emails is the worst company to deal with.
3. What do customer reviews have to say about the crowdlending platform?
In 2015, the Federal Trade Commission, FTC had its first case of crowdfunding scam where one Erik Chevalier raised $122,000 from backers on Kickstarter but never kept to his promise after 14 months. Interestingly, Chevalier was made to face the music so as to save the image of the platform.
If a crowdlending organization is notorious for adding hidden charges or does not offer buyback guarantees or provision funds, investors will likely want to talk about it in their reviews online.
Before choosing a peer-to-peer lending platform, it is advisable to read online reviews to know what people are saying about them. If more people have had success using the platform, you don’t need a soothsayer to tell you what to do next.
The best P2P lending platforms in Europe and the United States always attract the highest volume of organic reviews on their own website and on reliable review websites.