How to Avoid Peer-to-Peer Lending Platform Scams?

What are P2P (Peer-to-Pay) scams?

Peer-to-peer lending effectively connects lenders and borrowers using a platform rather than a traditional financial institution.

The working principle here is simple. Lenders are ready to lend their funds to potential borrowers that need additional financing. This way, the investors earn interest on the money they lend, and the borrowers get funding for whatever they need with a specific additional fee they have to return through the platform.

P2P lending has been quite popular among investors due to the better returns it has provided for them.

However, there are dangers involved with lending, as there are with any money transfers. Fraud efforts to run investors and other platform customers out of their finances have increased in the peer-to-peer lending industry.

To prevent that, Lonvest partners only with trustworthy and time-tested loan originators ‒ companies with more than 10 years of their successful operation in the industry. Our partners we connect you with have strict scoring system and a thorough analysis of their clients.

With some P2P platforms, on the other hand, it’s hard to tell whether they’re legit or were created with a single purpose to scam investors. This poses a considerable risk for investors ‒ let’s dive deeper into the topic to see how you can safeguard yourself from P2P fraud.

Which Peer-to-Pay (P2P) lending do scammers target?

These three types of peer-to-peer lending are the most common: lending for businesses, for properties, and for consumers. Let’s focus on the one we’re working with.

Lending for consumers

Individual consumers are given modest, unsecured loans through consumer lending by being put in touch with lenders who want to make money off the interest charged on the loans. As you can see, the principle is the same as the previous two types.

Signs That a P2P Lending Platform Might be a Scam

Scammers are coming up with more creative ways to rob P2P investors using scam schemes.

The main red flags are ubiquitous with those for any other financial fraud:

1. You can’t identify platform founders’ info quickly or any critical information about the platform ‒ founders, reviews off their website, and more.

2. The deposit process is too complicated, with bank accounts changing too frequently.

3. The offer looks just too good to be true.

4. The starting deposit amount is suspiciously high.

P2P lending frequently yields significant returns, so investors swarm to trustworthy sites. And significant returns are usually tied to high risks.

Any platform promising low-risk, high-reward profits should always raise suspicion. Very likely, this is a scam.

Another common fraud involves luring investors into a scams P2P lending network with a reward for their investment before shutting the business down.

Introduction bonuses don't always indicate fraud because they might be legal. You should become suspicious if the platform forces you into investing without leaving you any time for proper research. This is an apparent attempt to steal users' money before shutting down the site.

Tips for avoiding Peer-to-Pay (P2P) lending scams

Luckily, scammers can be identified in most cases. They share common red flags, and we will briefly overview each below.

Most of Them Have Been Around for Year or less

Most fraudulent platforms have been around for just a year or even less while promoting themselves as highly experienced platforms.

A less established platform that lies about its expertise, in most cases, has a higher likelihood of committing fraud than a platform that's already been around for some time.

Banking Issues

Each of the scams P2P platforms has experienced problems with banks. Moreover, in most cases, these platforms needed to tell their investors the reasoning for the banking changes.

Changes in banking practices might be a warning indicator that you should continue with great caution if you want to invest with a partner like that.

The platform's bank accounts have probably been stopped because of concerns about money laundering unless there is a rational justification for the move. The motive is usually public to the platform's users. Simply put, banks will only freeze accounts for a compelling cause.

Lack of Information Regarding the CEO and Owners

Even if the platform is relatively small, it shouldn’t have any problems listing its founders ‒ at least, customers deserve to know the CEO.

And sometimes, digging this information up is hard as platforms can have different owners in different countries or even be sub-owned by another company which also raises suspicions about the identities of its founders. Remember to do proper research, even if it takes a bit longer time than you expected.

Key Management is Connected to Fraud

Often, scam platforms change key management right before shutting down entirely and taking all the money they’ve collected with them. 

But if you research and see that some of the platform’s key management is connected to fraud cases ‒ that’s a huge red flag, and you should avoid this P2P platform.

Be Wary of Offers That Appear Too Good to Be True

Don't fall for it when a P2P platform offers you unrealistically high annual interest rates while actively promoting “risk-free” schemes. Nothing comes for free, and money especially.

It’s completely OK to ask questions about how things work ‒ and if the support gives you unreliable or too vague answers that, again, refer to endless benefits of partnership with the platform, this will most likely not work the way they advertise it.

Fake Projects

Most investors need to pay more attention to the time-consuming and hard work of doing thorough research on business ideas from companies operating in multiple countries and subject to various laws. If they notice it, they suspect the whole project might be fake.

Experienced investors research each project featured on a platform individually, and this is frequently when issues become apparent. Investors can discuss their ideas and experiences in various channels on social media platforms ‒ don't forget to check those for a second opinion on the project you’re about to invest in.

Changes to the Terms and Conditions

The terms and conditions, privacy policies, and all the contracts and agreements should be available for every investor to read and understand properly. These documents are your legal protection, after all.

When a platform can change the terms and conditions without letting its customers know about these changes, that’s a significant red flag.

Also, if you see that terms and conditions look copied and pasted from another project (sometimes even without bothering to change the names) or have too many grammatical mistakes, that’s a big warning sign for you.

Unavailability of Loan Agreements

It might be challenging to get a loan agreement, which is a written agreement between you, the platform, and the borrower.

This agreement is crucial for you to access since it details the interest rates, securities, loaning period, and buyback schedule.

Conclusion

As you can notice, researching is crucial to avoid scams on P2P lending platforms. It’s not something you should skip to save yourself time. Lonvest is entirely transparent on the terms of our operation, providing you with secure P2P lending services.