If it involves investing your money, it is never risk-free. The same goes for P2P lending. Here is a list of risks associated with P2P financing:
Returns are not guaranteed - It is always possible that borrowers can default on their loans. This can lead to a total loss of the invested amount. Investors also can’t expect P2P platforms to compensate losses out of their own pocket.
Risk of scams - Investors need to do their research to ensure that their chosen platform is legitimate and trustworthy. Proper P2P platforms don’t actually hold your money within the organisation. All of the loan money is entrusted with an independent and licensed trustee.
Potential for losses - P2P lending is relatively easy, which may tempt investors into going all in with their investments. Should the borrower default, there is no safety net for investors to fall back on.
Limited supply of borrowers - P2P is also relatively new to the Malaysian market. As such, there are not that many borrowers yet. Businesses who apply for loans with P2P lending platforms tend to be startups or small businesses that aren’t well established, and they come with higher risk of failure.
Liquidity risks - Investors cannot demand that a borrower repay their loans instantly. Borrowers are given a set time interval to repay their loans and the investor’s money will be tied up in this process. Investors will need to ensure that they do not need this money during the repayment period.