One of the investment choices that is very quickly becoming popular is peer to peer lending, commonly referred to as P2P lending. The concept evolved from the concept used in lending to friends and family and was expanded to a more commercial scale. Today we have P2P websites that are designed in such a way as to bring borrowers and lenders together for the benefit of both.
If you are a lender, you can use this as a form of both saving and investing and get back a good return on your money. If you are a borrower looking for funds for personal use or a business person seeking an injection of cash, this can work very well for you too. Most investors find this a great way to grow their money because they are guaranteed better interest than what they would get by leaving their money in the bank.
One of the things that most investors like about using these websites is that the people behind the company have put in place checks and balances to protect their money. Borrowers must pass a variety of rigorous checks before they can qualify to take a loan. The main idea is to of course make sure that they can repay the loan. Where there are defaulters, debt collection agencies are used to recover the money and the investor does not go at a loss.
As a lender, you put your money into an account so that it is ready to be loaned out. The interest rate you will be getting is already pre-set and there are some opportunities to select the interest rate you want.
The money will then be allocated and the investment will usually be split between different borrowers as a way to mitigate risk and so that you get the money back.
Your money is ‘ringfenced’, which means that the company will not be using it for their operations and many such companies also make sure they have bailout funds which are used to reimburse you as they follow up with a defaulter.
Benefits of P2P Lending
It is possible to get up to even double the interest you would get at the bank with a savings account.
Rigorous credit checks are carried out on borrowers and only a few make the cut.
If they default, the P2P company has debt collection agencies that work to recover the money
You can actually withdraw your funds before the term is up, although there are charges for doing so.
A P2P lender is regulated by government, which means that you are just as protected as you would be if you were investing with a mainstream financial services provider.
P2P lenders have usually designed the business to be quite low risk, but it is riskier than putting your money in a savings account at the bank. Like all other investments, it is important to do your homework and be comfortable with the amount of risk involved before taking the plunge.