Peer to peer lending has become very popular among investors in recent years to get the most out of their money. The reason behind the popularity of P2P is that the other investment types such as savings and bond rates continue to disappoint. Peer to peer lending is a way through which investors make unsecured loans to the borrowers, and in turn, they receive an average annual return of 7 to 11 per cent. It may seem like a solution for investors to get high yields when other investment areas prove to be disappointing. However, along with the benefits, peer to peer lending also have some risks.
We can say that peer to peer is non-bank banking because it is about making loans to the borrowers and getting interest with the actual amount. But it is different from regular banking loans as it cuts out the middleman. Invest your money directly in a P2P platform instead of investing in the form of certificates of deposit or money-making funds. In this way, you can get a profit rate that is higher than traditional saving accounts.
Peer to Peer platform offers convenience to both borrowers and lenders. For instance, as an investor, you need to register yourself at a P2P platform and make an account to start investing. Similarly, if you are a borrower, you can go to a P2P platform, fill a form and provide some necessary information. This information is provided to a potential lender who can choose which type of loan he wants to invest in. Usually, a borrower can borrow an unsecured loan up to £20,000. The loan term varies between three to five years, depending upon the loan type and how much time an investor wants to lock his money.
Advantages Of Peer To Peer Investment :
Peer to peer lending is an area of interest for yield-seeking investors because of the high return on investment along with other benefits.
Appealing Risk And Reward Ratio:
Over the past few years, cash ISA and traditional savings accounts are trying to offer high-interest rates over inflation. But savings continue to lose their power of spending over time. That is why investors explore new avenues to boost their portfolio. Peer to peer lending is a good alternative that offers above-inflation returns. As inflation and cost of living, and wage growth are uncertain, P2P provides a better return rate. If you are in search of an alternative to boost your investment portfolio without taking significant risk, peer to peer may be just what you need.
Create Your portfolio :
Peer to peer platforms offer more better control over a specific investment as compared to other investment types. On a P2P platform, you can choose a borrower according to your set criteria such as loan type, credit score, debt to income ratio, and loan terms. In this way, you can manage the variables surrounding your individual investments. Now many P2P platforms provide a feature to automate this whole process for you.
High Return On Investment:
Peer to peer is a way to earn high rates of return. Many investors report investment returns more than 1o% per annum. It is of no surprise that most of the platforms offer loan rates between six to thirty-six per cent. Through P2P platforms, you can earn double-digit returns easily, even after subtracting the management fee and allowance for loan defaults. Moreover, you can start getting monthly income from the first month of investment.
Risk Diversification:
The emergence of P2P has provided an opportunity for investors looking to build a diverse portfolio of assets and to make low-risk investments. In peer to peer lending, you can mitigate the risks by diversifying your funds across multiple borrowers. This way, if one borrower defaults, you can still earn interest from other borrowers and not lose all your amount.
Tax Free Return :
Peer to peer lending has a potential to be tax free with Innovative finance ISA. Some P2P platforms operate ISAs so that their lenders can earn maximum. If you are in a position to open an Innovative Finance ISA account, you can make a tax free return from P2P investment. However, there are awesome limitations on how many ISAs you can open and how much you can save and invest per tax year.
Peer to peer lending also have some risks along with the benefits. Risks involved in peer-to-peer lending include losing money, default borrowers, or the P2P site may bust. Moreover, any funds you invested in peer to peer are not backed up by the Financial Services Compensation Scheme.
Investing in peer to peer lending is a good idea if you understand the risks and manage to reduce the risks. P2P platforms work for everyone and offer so much choice. You can either choose a hands-off approach to earn a predictable return rate or get involved in the lending process to control your amount. Invest in Peer to Peer lending and get the return rate that you can not get from other investment types.