How should I choose a marketplace to invest in?

When choosing a loan marketplace to invest in, there are several aspects to evaluate and consider.

First, what type of investments does a particular marketplace offer?

The most common are lending company loans, real estate loans, and agricultural loans. See the most popular marketplaces in each category.

Second, do the loans in the platform come with a buyback obligation?

Quite simply, if a loan comes with a buyback obligation, the end risk is on a lending company offering the obligation and you should not worry much about the individual loans.

If a loan has no buyback obligation, the risks of the loan itself should be evaluated.

Both approaches can work, but investments in non-buyback obligation loans require extra caution and consideration as you have to see what other protection mechanisms (if any) are in place.

For beginners, investments in loans with buyback obligation is typically an easier way to start. 

Third, does the marketplace offer good enough loans to invest in from varying sources so that I can diversify properly? 

Some platforms act as marketplaces for many lending companies or real estate developers, some are mono-lender platforms that limit the ability to diversify because of loan offerings from only a single lending company.

Fourth, consider the marketplace track record and past performance.

Even though past performance and a good track record do not guarantee any future returns and success, investing in marketplaces and lending companies with them significantly reduces the risks associated with investing in unknown entities. 

Fifth, see whether a particular marketplace is regulated. Regulated platforms might offer more transparency and protection and they are always under the scrutiny of the regulator which reduces the likelihood that they will act against the interests of the investors. 

Learn more about the differences between regulated and unregulated marketplaces here.