Tom Enright is among a new breed of peer-to-peer investors.

Investor Tom Enright was the first person to invest through LendMe, a peer-to-peer property lender.

He invested $542,000 by funding a fully-secured residential mortgage loan on an Auckland property, getting a 7.84 per cent return on his money.

Peer-to-peer, or P2P, lending is on the rise, and there will be more like Enright dipping their toes in the market in search of a decent return on their money.

GSTOCKSTUDIO/123RF The typical peer-to-peer investor is male, 41, and tech-savvy.

The challenge for them is to decide just how much of their wealth to risk.

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There are four peer-to-peer businesses: LendMe​ (direct secured property lending), Harmoney​ (unsecured personal loans), Squirrel Money (diversified secured property lending), and Lending Crowd (focus on secured car lending).

They make their money by charging fees for matchmaking between people with money to lend, and people who want to borrow, and then collecting loan repayments, often keeping costs low by delivering their services online.

Traditionally banks and finance companies have been the middle-men between investor and borrower, but low interest rates on bank deposits have made them a target for disruption.

Peer-to-peer investors take on the direct risk of losing money on the individual loans they make. In return, they get a higher return than they can get at the bank, sometimes much higher.

That willingness to take on risk is a facet of a peer-to-peer investor. The Financial Markets Authority's guide to P2P investing focuses on those risks.

Fund managers and investment advisers are wary of peer-to-peer lending. Their inclination is to spread risk. Rarely will their portfolios hold more than 1 per cent to 5 per cent of any bond.

For them, fixed interest investing is about preserving investors' capital, and generating a modestly higher return than bank term deposits pay.

"In a low interest rate environment with term deposit rates likely to stay low, or even got lower, people's requirement for income is strong, so the motivation to look for something with a bit of yield is really understandable", says Harbour Asset Management's Mark Brown.

DIY investors have a patchy record when taking concentrated risks in search of higher interest rates, Brown says.

Finance company debentures, preference shares, bank-distributed derivative funds and property syndicates have all offered high returns, but destroyed capital when they turned out to be far riskier than investors' believed.

New Zealand's four peer-to-peer business all have different focuses, but share one important characteristic: Each do credit assessments of borrowers to help investors understand the risks they are taking when funding any individual loan.

That makes assessing the skills and experience of the people behind each of the peer-to-peer businesses key, says Brown.

Enright, aged 82, agrees.

"I look for good security and that the people I'm dealing with are reputable and honest," he says.

"I liked the way LendMe went about its business. I had confidence in the people concerned, in their probity and their honesty."

The retired pilot shows some of the usual traits of a peer-to-peer investor.

He is a man. He's well-educated. He is confident about his ability to judge risk. And, he has a revolutionary streak, feeling satisfaction from being able to take business of big "greedy" Australian banks.

But his age is unusual. Figures from Harmoney​ show most peer-to-peer lenders are 50 or under, with 41 being the average age.

Harmoney is by far the biggest peer-to-peer lender with $275m of loans made.

Its investors spread their money over about 100 loans each, often lending to both lower and higher risk borrowers. That makes Enright's more focused investing unusual.

And, unlike the secured loans Enright has funded, Harmoney​ loans are unsecured personal loans. The typical peer-to-peer lender is an unsecured lender.

Just over half of Harmoney's​ loans are for "debt consolidation" to borrowers who have debts they want to combine, or at least get a lower interest rate on. Home improvements, holidays and used cars are the next most common reasons given for borrowing.

Unsecured consumer loans offer higher interest returns for investors. With that typically comes higher risk.

Harmoney​ publishes arrears and default data for each category of borrower, and also the returns investors have been getting.

It's "realised annual return" on a "portfolio" of loans shows a before tax return of 11.85 per cent for investors.

There's another way Enright differs from the typical peer-to-peer investor. He is a person.

Today, the majority of peer-to-peer funding comes from big financial institutions.

About 75 per cent of Harmoney's​ funding comes from institutions like Heartland Bank, though ordinary investors going into peer-to-peer may take comfort that experts have cast their eye over Harmoney​, and trusted their money to it.

REASONS TO BE A PEER-TO-PEER INVESTOR

Harmoney says people invest in peer-to-peer because:

- They are looking for an investment that could offer regular repayments over time. This includes people trying to generate income to live off

- They are spreading risk by putting a percentage of their portfolios into consumer lending.

- They understand they are taking the risk of a loan defaulting, but believe the risk is manageable and the return fair.

- They enjoy the process of lending.