{"id":24684,"date":"2021-08-10T10:18:09","date_gmt":"2021-08-10T10:18:09","guid":{"rendered":"https:\/\/codeandpepper.com\/?p=24684"},"modified":"2021-08-24T07:42:42","modified_gmt":"2021-08-24T07:42:42","slug":"crowdlending-guide-what-is-it","status":"publish","type":"post","link":"https:\/\/codeandpepper.com\/crowdlending-guide-what-is-it\/","title":{"rendered":"Quick Crowdlending Guide – What It Is and How It Can Make Your Investments Better"},"content":{"rendered":"\n

FinTech is all about finding new ways to do business and make money. Whether it is a smart way to reach investors or a simple, retail buy-now-pay-later solution, everything is oriented towards creating something nobody has ever thought about before. Even money lending has been revolutionised lately. Crowdlending<\/strong> is becoming a global phenomenon as we speak, so don\u2019t be late \u2014 find out all about it right now!<\/p>\n\n\n\n\n\n\n\n

\"Crowdlending<\/figure><\/div>\n\n\n\n

Before we proceed to analysing the most popular and attractive crowdlending services, we should first take a brief lesson. P2P lending (or peer-to-peer lending)<\/strong> is a model in which money lenders are connected directly with borrowers, without a bank in the middle<\/strong>. Of course, the whole process is always highly automated by a specifically designed FinTech system. In a way, it is similar to crowdfunding<\/strong>.<\/p>\n\n\n\n

The results of such an approach are very attractive for investors who can achieve higher return rates and for borrowers who can borrow at lower interest rates. In the case of crowdlending (a sub-type of P2P lending) specifically, we\u2019re talking about unsecured personal loans<\/strong> in most cases. However, there are exceptions and businesses use this service too. In order to minimise risks, companies undertake very thorough checks on every single borrower, but they also have other tricks up their sleeves, for example spreading the investors\u2019 money across dozens of borrowers. One day we’ll also cover the topic of P2P lending software development<\/a>.<\/p>\n\n\n\n

It seems too simple…<\/h2>\n\n\n\n

Correct – the basics seem easy to understand, but it\u2019s just the tip of the iceberg. There is a number of models in which P2P lending FinTechs can operate and you should be aware of them, no matter if you\u2019re an investor, borrower or want to build your own platform. <\/p>\n\n\n\n

The client segregated model<\/h4>\n\n\n\n

The client segregated model is common among three-party platforms that connect lenders with borrowers directly. In this case, the platform only serves as an intermediary which charges fees for its help, however it does not keep its clients\u2019 money on its accounts. This is not really crowdlending but a simple P2P solution<\/strong>.<\/p>\n\n\n\n

The balance sheet model<\/h4>\n\n\n\n

In this case, money from investors flows through the platform\u2019s accounts. Usually, investors transfer amounts to the platform which takes care of distributing the money among the borrowers and collecting the interests which are then transferred back to the investors. This is pure crowdlending<\/strong>, because one investment can be distributed among a huge number of borrowers \u2014 literally a crowd<\/em>.<\/p>\n\n\n\n

How risky is crowdlending?<\/h2>\n\n\n\n

Always when lending money to somebody, we need to think about risks. Will they repay us? Will they pay on time? What about the interests? How do we sign a contract? Crowdlending platforms are designed to make it all simpler and safer. As you read a moment ago, the balance sheet model allows for disbursing money from a lender among hundreds of borrowers. Thanks to this smart move, even if ten of them miss their repayments, it may constitute for only a percent of the whole operation. It wouldn\u2019t be possible without FinTech. Moreover, modern credit scoring systems make use of technologies such as AI<\/a> in order to avoid problems before they happen in quite a precise way.<\/p>\n\n\n\n

Thanks to huge databases of potential borrowers and detailed information about them, as well as access to data through open banking, borrowers can be divided into tiers. The better your credit score, the lower interest rates can be offered to you. However, it works both ways. If an investor is ready to risk a bit more, they have a chance for higher returns.<\/p>\n\n\n\n

There is also a so-called platform risk<\/em>. In other words, it\u2019s a possibility that the FinTech system fails or becomes a victim of a cybersecurity breach<\/a>, or both it and its users fall victim to a fraud.<\/p>\n\n\n\n

The least expected is probably regulatory risk<\/em>. Fortunately, the UK is a relatively stable environment and we should not expect any legal changes that could affect crowdlending anytime soon.<\/p>\n\n\n\n

Top crowdlending platforms<\/h2>\n\n\n\n

Zopa<\/h3>\n\n\n\n

The first crowdlending company in the UK (and in the world as well), Zopa<\/a>, was founded in March 2005. Its aim was to connect investors with individuals seeking loans. Before the great financial crisis of 2007 it grew in a stable manner without any losses and even in 2008 it managed to suffer only a minor dip in returns. After twelve years, Zopa became fully regulated by FCA and is now a mature and respected FinTech. It even offers retail banking services, including deposit accounts and credit cards. A real success story!<\/p>\n\n\n\n

Zopa has an interesting investment model. To start, you need at least \u00a31,000. Zopa\u2019s system breaks your investment into small chunks and spreads it across a number of different loans in order to maximise your safety. Then, you get monthly repayments, including interest, albeit diminished by the service fee.<\/p>\n\n\n\n

Because of the large scale of Zopa’s operations, no one person can be lent more than 1% of the sum you invest<\/strong>, so you don\u2019t have to worry about trusting the people who borrow your money. Even if someone fails to repay, it will be just a fraction of what you invested.<\/p>\n\n\n\n

Currently offered services:<\/h4>\n\n\n\n