P2P peer to peer risks

Published on April 8th, 2019 | by Jenny


Peer to Peer Lending: Know the risks

LCF: A Case Study

Last month, mini-bond firm London Capital & Finance collapsed after releasing false and misleading adverts online. The ads promised investors 8% p.a tax-free on their savings and many put all of their savings into the company, with 11,000 investors contributing to £236m worth of bonds.

Investors were told that their money would be lent out to a large number of companies. In reality the money went to 4 known companies, each one with their own problems. The companies involved were mainly housing development companies abroad. It turned out that the companies weren’t eligible to build and weren’t able to pay any of the money back.

London Capital & Finance claimed that they were FCA authorised and regulated in their adverts and the FCA are now under investigation for their dealings with the company.

It is estimated that only 20% off the money can be retrieved and reimbursed to the investors. Meanings millions have disappeared, with a lot of the money ending up in the personal possession of 4 major members of the company.


Facebook Groups and Reviews

If you search for the company online, you’ll be made aware of their extremely poor reviews and groups that have been made by disgruntled investors.

This in itself is a warning sign and something that could have stopped potential investors in their tracks if they had done some research prior to signing up and investing in the program.


Do your research

For this reason, it is extremely important that you do your research before investing in any peer to peer lending service. There are many providers that can be trusted but there are also a lot that can’t, so make sure you look into any company you are considering investing with heavily.


Know the risks

P2P Lending is not risk free. In fact it is the high risk factor that gives you your return on investment. There is always a chance that the person you are lending to won’t be able to pay you back. All money you invest you do so knowing that there is a chance it couldn’t come back to you. Don’t invest all of your savings and only invest what you can afford to lose. If you don’t lose it, consider yourself lucky and stick to safe practices.

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