Peer To Peer Lending is a highly flexible way of earning higher returns on investment than what you get in the bank saving accounts or other traditional investments. It helps you to invest and start getting profit without doing hectic research and learning as you have to do in property investment or shares. Peer To Peer Lending is becoming popular among the investors of the UK and all over the world. It is due to the benefits and flexibilities that it offers to the borrowers as well as investors. Although p2p lending has been in the market for a number of years, there are people who do not know about it. If you are one of them here, we gathered all the information about p2p lending.
What Is Peer To Peer Lending?
In the most simple way, we can say that peer-to-peer lending means lending money to individuals or businesses without involving any middle man or bank. However, you still need someone to facilitate the lending and borrowing process, and here the p2p platform comes in. all the p2p transactions are carried out through online platforms. These platforms manage all the processes from matching lenders to potential borrowers to getting loan repayments. In the beginning, you may think that it is risky to lend money to individuals directly, but with time you can learn to spread investment across multiple loans to mitigate the risk.
Why Consider Peer To Peer Lending?
The three things about p2p lending that impress investors are interest rate, safety, and liquidity. If we take the example of bank investment, it is safe and liquid, but the interest is not enough to overcome inflation. Alternatively, you may invest in property. It is also relatively safe and can also offer high-interest rates, but it is illiquid. It means if you are in need of money, you have to wait to get access to the cash till the sale of the property.
However, p2p lending scores high in safety, liquidity, and interest rate. P2p loans are relatively safe, liquid and also offer high-interest rates. Especially when you split your capital across multiple loans, the chances of risks are reduced, and you can earn high returns. Moreover, you can also sell your loans in the secondary market and get your money back.
You must keep in mind that it is not guaranteed that it is risk-free and liquid, but you have to take a little risk to get better returns on investment.
Is P2p Investing Much Work?
You can earn high returns from p2p lending compared to bank investment, and there is not much effort you need to do to build your p2p investment portfolio. What you need to do is find the right platform for you and make an account on that platform. After registering yourself, you have to transfer funds and then start lending to get profits. You can also set lending criteria and select borrowers you want to lend money to. Furthermore, some platforms offer auto-invest options through which you can spread your capital across multiple loans automatically.
Types Of Peer To Peer Loans
Typically there are three types of peer-to-peer loans that include consumer loans, business loans, and loans against property. Some platforms offer all these types of loans, while others focus on only one type of lending.
Consumer p2p loans are typically unsecured and carry a high risk. When you invest in this type of loan, there are more chances of losing money due to borrower default. However, business and property loans are relatively secure because you have a valuable asset of the borrower as a security that you can sell to get your money back if a borrower fails to repay on time.
Is It Safe To Invest In P2p Lending?
Like all other investments, p2p lending carries some risks along with the benefits. You must keep these risks in mind before investing in p2p loans. The most significant risk is the risk of losing money due to a borrower defaulting. Another risk that investors do not consider is the risk of the platform going out of business. So you must choose a platform that has a transparent track record and has been working in the market for several years. Moreover, your investment is not protected by the government through a financial services compensation scheme.
Now that you have all the essential information about peer-to-peer lending, you can make a better decision whether it matches your investment goals or not.
These platforms manage all the processes from matching lenders to potential borrowers to getting loan repayments. In the beginning, you may think that it is risky to lend money to individuals directly, but with time you can learn to spread investment across multiple loans to mitigate the risk.
You have to take a little risk to get better returns on investment.
