Are you looking for an investment outside of the stock market? If you answered yes, then P2P lending might be worth a look. Let’s dive in and take a look at what P2P lending has to offer.
What is P2P Lending?
Peer to Peer, or P2P, lending is the practice of lending money to individuals or businesses through an online platform that matches lenders with borrowers.
Because the P2P lenders often operate online overhead tends to be lower. This translates to lower fees and interest rates for the borrowers and a higher rate of return for the lenders.
Loans are usually unsecured, and when compared to the stock market there tends to be less volatility and higher liquidity.
Characteristics of Peer to Peer Lending
- It is typically conducted as a for-profit business model
- There does not need to be any prior relationships or dealings between lender and borrower
- An online platform acts as an intermediary between lender and borrower
- Lenders can choose which borrower they want to invest in
- Loans are normally unsecured but can be secured in some special cases
- Loans are not protected by government insurance
Is P2P Lending for You?
A basic understanding of what P2P lending will help you decide if it is for you. People have successfully made a lot of money with this investment instrument, but you need to understand the risks.
As with any investment, you could lose everything if the borrower defaults on the loan. These loans are unsecured by any collateral, and they are not backed by the government. In the event of a default you will lose all, or most, of your investment and have no recourse.
Before diving in, you will also want to check if P2P lending is legal where you live. Certain places do not permit these types of investments.
If you choose to invest, then you will most likely have to go through a so-called peer to peer intermediary. An intermediary is just a website that collaborates with lenders and borrowers. These platforms will advertise and showcase borrowers to attract lenders. They will also often perform credit checks, verify bank information, provide customer service, and provide legal compliance services. One such intermediary is P2P Lending Sites. If you click on the provided link you will be taken to its homepage where you will see an extensive list of P2P lenders. Stats such as average returns, minimum investment amount, and availability will be displayed. You can also link directly to the various sites and browse the loan offerings.
P2P lending can be a lucrative way to invest if you are looking for high returns outside of the stock market. As with any investment, do your research on the loans you want to invest in, and be prepared to take on the risk. Remember, these loans are typically unsecured and not backed by government insurance. You might lose everything if the borrower defaults. For this reason, it is a sound strategy to invest in several loans at once and avoid going all in with just one loan. Do your due diligence and decide if peer to peer lending is for you.