Peer-to-Peer Lending Risk: 4 Types of Risk To Consider Before You Make Your First Investment

Let’s talk about the elephant in the room:


If you have ever invested, then you know that any reward comes with a bit of risk.

But how much is too much risk?

Where do you draw the line? And how can you minimise peer-to-peer lending risk while maximising return?

These are the questions that investors will be asking themselves before they take the leap. And yet they are incredibly important to ask yourself whenever you plan on investing in a new asset.

If P2P investing is an investment asset you’re considering, then it’s important to understand the risks, the rewards, and best practices to safely navigate this industry.

At least, that’s how the best investors like to do it.

At Swaper, we are committed to being transparent about the benefits as well as the risks of P2P lending. That’s why in this article, we’ll cover:

  1. Is it safe to invest in P2P lending?
  2. What are the risks of P2P lending?
  3. What are the main advantages of P2P investing?

Is it safe to invest in P2P lending?

Let’s be clear:

P2P lending is just as safe as investing in the stock market.

However, all investments carry “a level” of risk.

The peer-to-peer lending risk is higher when you invest in an unsecure or illegitimate platform.

We’ve all heard the stories of email scams or fake ATM machines that steal and clone your information. With P2P investing, what happens is that certain platforms turn out to be “fake shell companies” that don’t actually invest in loans.

These illegitimate companies may pay back early investors using funds collected from new investors. This is an unsustainable business model (similar to a Ponzi scheme),and causes the company to collapse. In other cases, the founders simply take the investments and run.

So how can you make sure you’re investing in a legitimate P2P platform?

The key is to invest in a platform that is very transparent with its investors.

P2P investing doesn’t fall under typical regulation, which means the platforms are rarely supervised by any Financial Supervisory Authority. This essentially means your investments are not guaranteed in any way, and you need to rely on what the platform says.

At Swaper, we publish our annual reports every year, publish our CEO letters to investors and are in constant communication with our users. We’re also transparent in how much money we’ve returned to our investors via our Statistics page – more than €3 million to date.

To summarise: it is safe to invest in P2P investing as long as you choose a platform that is transparent, communicates with its investors and is a genuine, registered company.

What are the biggest peer-to-peer lending risks?

There are 4 risks to take into consideration when investing in P2P loans.

1. Credit risk

When it comes to P2P investing, there is always a risk that the borrower won’t repay their loan. When you deposit money into your account and start investing, there are two proposed outcomes:

  1. The borrower pays back the amount in full and on time, and you receive their principal along with interest
  2. The loan repayment is delayed. After a certain period of time, the loan is classified as bad debt and might be reimbursed by the platform.

The good news is that at Swaper and with our Buyback, we can refund both the principal and the interest – that means you won’t be losing any money no matter how late the borrower is.

2. Currency risk

Currency risks relate to exchange rate fluctuations and the fees associated with making transfers. When you open an account with a foreign currency, you’ll always need to factor in the currency exchange and fees your bank might charge you.

At Swaper, we allow investors to open an account with either a Euro or British Pounds account. Those who hold other currencies can still invest using the Wise platform, who we’ve partnered with to transfer euros or GBP at a very affordable rate.

3. Loan originator risk

Many P2P platforms source their loans from loan originators.

Loan originators (LO for short) are companies that are in charge of managing borrowers: finding borrowers, making sure they pay on time and collecting interest payments.

There is always a risk that a loan originator could go bankrupt, either due to a high amount of credit defaults or mismanagement of their business. For this reason investors should also check a loan originators’ financial statements.

Although we offer buyback at Swaper, there is still loan originator risk when investing in loans from our LO, Wandoo Finance.

4. Platform risk

Like any other company, there is always the risk that a platform could go bankrupt. This could be due to lack of investors or loans,  poor management of the platform or if credit defaults are too high. In this case, the platform files for bankruptcy and investors may risk losing their money.

In the unlikely event of liquidation for Swaper, investors would retain the assignment rights of their loan and have the full permissions to continue to claim against the borrower.

This is because all of our loan assignment agreements are transferred and owned by the investor as soon as funding begins. This means that you’ll still own your investments even if the platform goes bankrupt.

Our loan originator, Wandoo Finance Group, issues loans in Europe with an annual interest rate relatively higher than investors receive from Swaper. This high margin is in excess of the 14-16% offered to Swaper investors and it’s what allows us to cover operating expenses as well as the cost of risk.

What are the advantages of investing in peer-to-peer lending?

Higher than average returns

The average stock market return has been sitting pretty at 8% investment returns since 1871.

Although it’s not a bad return, it’s not always attainable and can fluctuate widely from year to year.

In fact, many of the other assets will not beat this rate. But peer-to-peer lending can.

With Swaper, for example, investors can expect to receive 14% returns. Not only is this a higher than average return, but fluctuations aren’t so varied, and returns are more stable.

We also offer a loyalty bonus program for our most frequent investors. This means that private customers who commit to lending €5000 or more will earn 16% of interest on their investments.

This makes P2P investing an ideal asset for those who want to grow their investments enough to retire early.

More liquid than other investments

Committing thousands of euros to a property or a business is quite limiting as you often won’t be able to access that money for years.

P2P investing offers a good alternative: instead of waiting for years to liquidate your hard working euros, you can withdraw your earnings typically over a period of month. And on the secondary market, you can sell your investments in hours, rather than days.

This means you don’t lock in your investment for more than the given period, and you get quick access to the returns on your investment.

Set and forget it

With peer-to-peer lending, you don’t have to self manage any investments or learn the ins and outs of how businesses operate. Swaper offers an Auto-Invest Portfolio option that funds loans based on your specific, predetermined criteria.

Through the Auto-Invest function, you’ll be able to determine (along with other options):

  • Loan term
  • Maximum investment in one loan (to aid diversification)
  • Country
  • Reinvestment of your returns into new loans

This feature is a big benefit of using a platform like Swaper.

Whether you are technically-minded or not, you can enjoy the same benefits and level of return.


The good news is that with P2P lending, you can drastically reduce the investment risk by picking a platform that is transparent, correctly registered and in constant communication with its investors.

At Swaper, we are well aware of the risks that happen in the P2P lending industry; that’s why we strive to empower and educate our investors so they always feel comfortable with where they put their money.

Once you’ve analysed peer-to-peer lending risk, we’d love to have you be part of our investor community.

You can create your free account when you’re ready to invest.