As an established peer-to-peer (P2P) lending service provider in New Zealand, we’ve answered many questions from potential investors over the years. But what are the questionsthat you the potential investor should consider asking? Read on for inspiration.
The basics of P2P lending
Let’s do a light summary of what peer-to-peer lending is before we go any further. In P2P, a platform (e.g., MoneyShop) links borrowers (people who have applied for a loan) with lenders. The platform facilitates the loan repayment process, collecting instalments from borrowers and distributing them to investors. There’s much more to P2P lending. Head to our article Peer-to-Peer Lending in NZ and our guide on Peer-to-Peer Lending vs Traditional Lending to get a fuller picture.
The first question you should ask a P2P provider
The first question to consider asking a P2P lending provider is a simple, yet essential one. It is:
Why should I choose you?
As a potential investor, you would have shopped around and probably heard a range of answers to the question, ‘Why should I choose you?’ Depending on your level of experience, you’ll no doubt know what you need to hear. If you don’t, then ask the provider for further reasons why you should pick them. Another thing to consider is whether the provider mentions how long they have been in operation. Businesses that have operated for decades have faced significant economic volatility and survived. That doesn’t automatically mean they are the right fit for you and you shouldn’t do your due diligence. But, longevity does indicate the provider probably knows what it takes to be an attractive investment option and has delivered on it.
Other key questions to ask a Peer-to-Peer Lending Service
You’ll have your own questions to ask a P2P provider, but here are some others you might want to consider.
Q. Have you ever missed a payment to an investor?
Our answer at MoneyShop to that question would be: Since we started in 1993, MoneyShop has not missed a payment to an investor.
Push the platform on why they haven’t missed a payment. And if they have missed any, ask them why.
Q. What are the most popular loans you offer?
A platform’s website should list the types of loans offered. What might be helpful is to ask which loans are the most popular. Understanding the nature of the loans can help you assess any potential associated risks.
Q. What is the average loan default rate on your platform?
As a potential P2P investor, it’s important to know the loan default rate as part of your due diligence.
Q. What is your process for handling default payments from borrowers?
A natural follow-up to the loan default rate question will be to ask what happens when someone defaults on a payment. The answer should give you a gauge of how robust the platform’s procedures are.
Q. How is interest income distributed to investors?
If you have yet to establish how interest income is distributed to investors, then you should do so early on in your research.
Q. When can I get my investment back?
For MoneyShop, your investment is for the length of the loan and will take approximately 18 months for the return of capital. Other platforms may have different timescales.
Q. What fees will I have to pay for my P2P investment?
Whilst MoneyShop does not charge any fees for investing with us, other platforms may have fees.
Q. After I’ve made my investment, how responsive are you in answering my questions?
We pride ourselves at MoneyShop on being easily accessible to our investors and answering their queries promptly. When you talk to a platform, put a scenario before them. For example, ‘If I email you late on Friday afternoon, when should I expect a response from you?’
Q. What happens to my investment if the platform goes under?
In any investment, it’s normal to ask what will happen if the platform you invest with ceases operations. Ensure you get peace of mind from the response.
Before you leave, please take this on board
The above list of questions is not definitive. Whichever P2P platform you use, we strongly encourage you to get independent advice, and to consider what other questions you might want answers for. If you have any questions you’d like us to answer, all you need to do is get in touch via the form on this page and we’ll get back to you promptly. We look forward to hearing from you.
