The Peer-to-peer lending marketplaces have gained popularity at lightning speed since its inception in 2005, when Zopa was launched in the United Kingdom. Now there is a plethora of P2P lending websites offering a solid alternative of traditional lending custom of banks. The intent is to fund Low Interest Rate Loans quicker, at the same time, securing the investors front by generating expected returns consistently.
When you invest into P2P lending
Your money is loaned out to borrowers, who can be a private borrower or a business. You earn profit on the interest rate charged (which can be as high as 36% per cent per annum). The major risk of P2P investing is the possibility of default by means of bad loans; if the borrower fails to pay back the investors the money they’ve loaned.
Is P2P lending safe? – Pros and cons
No investment is 100% secure. If a lending company is saying your invested money is completely safe, then you are getting lured by frauds. For lender protection, the P2P lending companies have a strong collection process.
How to Mitigate Risk?
Diversification is a crucial step to mitigate risk. Investors have a brilliant option to diversify across multiple risk categories. Diversified investors have not lost money on P2P lending marketplaces. It gives lenders a risk-adjusted return on investment.
Choose a reputed P2P Lending Platform that allows you to spread your investment across a minimum of 20 different types loans within liberal risk grades. Investing small amounts across diversified loans will keep the default rate at consistent levels, thus eventually you can enjoy fair returns.
Despite the downsides, P2P lending is Best way to Invest Money. As they say the early bird gets the worms, so more investors can take advantage of this growing marketplace. There is still plenty of room for growth in the context of chasing the global population of borrowers.