How to avoid the main risks?

Avoiding the risks completely is impossible, but there are two mechanisms you should employ to reduce them significantly.

The first is due diligence.

Due diligence encompasses research and analysis of the available investment opportunities and the loan marketplaces, to understand 1) how likely a particular investment is to perform well and 2) how likely is a particular loan marketplace not to cause any problems with accessing your funds.

If done properly, due diligence takes up significant time and requires somewhat advanced financial knowledge as, for example, the financial results of companies have to be reviewed.

This is one of the aspects we at Welfio are helping with. Our Risk and Total Scores can help you easily identify investment opportunities in line with your risk preferences that maximize your long-term risk-adjusted returns without having to spend any of your time on due diligence.

The second is diversification. In short, diversification refers to spreading your investments across multiple assets to ensure that your whole portfolio does not get wiped out because a single investment has failed. 

For loans, this would mean not investing all in a single loan, single project, a country, or even a loan marketplace, but instead spreading among many great opportunities to significantly reduce the risks.

We have covered the topic of diversification much more broadly in a blog article.