Peer-to-peer (P2P) lending connect borrowers and sellers through a peer lending platform. Peer-to-peer removes traditional banks from the process but p2p platforms are still necessary. P2P lending is part of the fintech revolution it is also known as social lending and crowdlending. Understanding peer to peer lending risks will reduce the risk of loss and taking advantage of peer to peer lending will also boost your passive income.
Banks charge high-interest rates, p2p lenders offer cheaper ones. They can do this by being more efficient in their operations. P2p lending is different from banks because instead there is only one lender and borrower there are many lenders and one borrower. The lenders will be able to see the profile fo the loan and the borrower before they lend. The re-payment is split among many borrowers.
P2p lending offers better interest rates than CDs or savings accounts.
There are many types of p2p lending
- commercial and real estate loans
- personal unsecured loans to individuals
- payday loans
- loans with collateral such as jewellery, watches and fine art
Be Warned! Borrowers may default. There is no guarantee from governments such as in the case of banks.
Investors can learn how to invest in p2p loans by doing specific research and taking specific steps this reduces the platform risks and increase the potential passive income received!
Lending Club is the P2P with the most volume, but there are a lot of different peer-to-peer lending platforms? Their average interest rate is between 5.32% and 30.99%. This is set according to the risk o the loan. Each p2p platform has different fees and charges.
Investors returns in the p2p space vary because they have different p2p loan portfolios, Since you can start investing with a small amount of cash, the risk is small and you have an opportunity to learn the ropes before you invest the big bucks!
As all money writers say “invest the money you are willing to lose”.