If you have cash that you want to invest, you will have so many options such as bonds, savings accounts, stock market and complicated derivatives. All these investments are traditional investments and present in the market for years. But now, they do not offer enough returns to the investors. That is why investors are looking for alternative investments. If you are looking for an investment that offers high returns, you should consider peer to peer lending.
If we look at other options, saving accounts are safe, but they offer low returns, shares need much understanding before you invest money, bonds pay out regularly, but you can not grow your money. So you have to look for new investments and in which technology has been embraced. That is where p2p lending proves to be the best option for forward-thinking individuals and enterprises.
What Is P2p Lending?
Peer to peer lending is a new way of lending that does not involve any financial institution or bank and matches borrowers directly to the lenders. This type of lending is carried out through online websites that are known as p2p platforms. P2p platforms offer a number of loans, including personal loans, business loans and property loans. Investors can diversify their portfolios and choose the borrowers according to their risk tolerance. One thing about p2p lending that attracts investors is that it offers higher returns compared to traditional investment options. It also benefits the borrowers as they can get quick access to funds at a lower rate than bank loans. There is a large number of individuals who invest in p2p lending now. But let’s look at the advantages and disadvantages of such an investment.
Advantages Of P2p Lending
→When you invest your money in p2p lending, you can have the following benefits:
- The most obvious advantage of p2p investment is that it offers higher returns compared to conventional financial institutions. The returns that you earn from other investment options may not be enough to keep up with the inflation. But when you invest in p2p loans, you can earn stable returns without taking much risk.
- Typically all the p2p platforms operate online, so investors find it convenient to invest money without going to the bank. In p2p lending, all the processes, from making an account and depositing money to choosing borrowers and getting repayments to take place online.
- P2p lending also allows investors to diversify their portfolios. It is the best way through which investors can reduce the risks. With a diversified portfolio, economic turbulence will not affect your funds. You can spread your money across different loans and can minimise the chances of losing money.
- Another advantage of p2p lending is that p2p platforms are regulated by the Financial Conduct Authority (FCA). It provides p2p platforms with a framework of rules that they have to follow. It ensures that the platforms provide a transparent and fair service for customers.
- Some peer to peer lending platforms offers protection to the investors through contingency funds. They use this fund to cover the investment amount if any borrower defaults.
- In addition, p2p platforms carry out a credit check before investing your money in any loan, which makes sure that your money is granted to creditworthy borrowers, and there are fewer chances of losing it.
Which type of Lending is P2p?
Peer to peer lending, also known as P2P lending, is a form of debt financing where loans are made from individual investors to borrowers. Lenders can be private individuals or institutional investors. Borrowers can be businesses or consumers.
The concept of P2P lending originated in the early 2000s in the United States with companies such as Prosper and Lending Club. These companies match borrowers with lenders through an online platform. The borrower submits a loan request. The advantage of P2P lending for lenders is that they can achieve higher returns than they would from traditional fixed-income investments.
P2P lending has grown rapidly in recent years. In 2015, global P2P lending volume reached $64.5 billion, up from $2.9 billion in 2013.1 The growth of P2P lending is being driven by the increasing use of online platforms and the growing popularity of alternative investments.
The most obvious risk is that the borrower may not be able to repay the loan.