P2P lending as an investment option is highly exciting given the high returns and monthly cash flows. However, as lenders start their lending journey, there are high chances they commit some common mistakes. Given below are five mistakes that you should stay away from.
Lack of Diversification
Lenders should start small, but that doesn’t mean you give all of your money to one borrower or a few of them belonging to the same category. You should diversify your money across various borrowers who are of different types.
Not Regularly Checking Their Account
Investors should regularly check their account as repayments come in throughout the month. It is because the platforms set the repayment date close to the salary date of the borrower. Not checking on that repayment and not acting on the money leads to an opportunity cost as you could have reinvested that money or withdrawn it to your bank account.
I know how exciting investing in P2P Lending can get. However, we need to remain patient and play the long-term game. You cant expect the borrowers to pay up in weeks after you have invested and to pay on time. Remember that these borrowers tend to be highly risky and let’s admit it there will be delays. I have myself faced delays of up to 45 days in payment. However, the platforms do work hard to ensure timely repayments.
Picking Low-Risk Borrowers
You should not only focus on the low-risk borrowers because even though they pose less risk compared to other borrowers, but they also leave you with average returns and significant risk in case your portfolio is not diversified. Thus you should eye a strongly well-diversified portfolio spread across multiple types of borrowers.
Starting With One Borrower
You should begin your lending journey in small baby steps but not in a way that you have only one borrower in your portfolio. Platforms allow you to start investing from as low as 750/borrower. Make the best use of it and acquire as many borrowers as you can in your portfolio. I have seen people leave P2P lending just because of one delay or one borrower not paying up. Remember that is not what you want to do. You want to remain invested for the long term and keep your portfolio diversified.
Those were some of the classic mistakes that you shouldn’t commit as a P2P lender. We also have few bonus tips for you on P2P Lending India. That was all for this time I will see you guys in the next one until then keep reading LearnP2P!