Peer-to-peer lending is a non-traditional investment. Despite that, it has gained popularity in the UK within a small period. According to recent research in the UK, the p2p lending market alone is £2.2 billion. It is an alternative to traditional investments and offers lenders a low-risk opportunity to invest their money and expect a good return. However, many investors are still confused about whether they should invest in p2p lending or not. To find whether it is a good investment or not, it is important to compare it with traditional investment options. To help you out, we are going to describe p2p lending in comparison to other investment options.
What Is Meant By P2p Lending?
Before investing in peer to peer lending and finding whether it is a good idea or not, it is essential to understand how p2p lending works.
P2p lending allows individuals to invest their money in p2p loans and earn high interest. The process of lending is carried out through online p2p platforms, which brings investors and borrowers to the same place and eliminates the need for banks or any financial institution. It is one of the important reasons for the popularity of p2p lending. When a bank is not involved, there is no bank fee and other charges, which makes it a cost-effective option.
In addition to providing benefits to the investors and the platforms, p2p Lending also causes a positive impact on the economy. Because the money is invested, incredible borrowers can be individuals, businesses, or property investors.
Mainly p2p Lending provides solutions to two major issues. Firstly, it helps investors to earn high interest rates in this low-interest environment. Secondly, it allows borrowers to get quick access to funds and fulfill their obligatory financial requirements.
P2p Lending Vs. Crowdfunding
Most people confuse p2p lending with crowdfunding. But there is a significant difference between these two. In crowdfunding, investors raise money for a specific cause, and in return, they get discounts on products or equity in the business. The main objective is to collect money to fund a project.
In contrast, p2p Lending the money is lent to the borrowers, and investors are able to get the money back along with interest. In crowdfunding, no interest rate is set except in property crowdfunding.
P2p Lending Vs. Bank Savings
Bank saving accounts fail to provide the benefits that they offered in the past. Now, if you keep a large sum of your money in bank accounts for a long period, you may end up losing your money to inflation. The inflation rate is increasing day by day, and the profit you earn from bank savings is not enough to keep up with the cost of living. If you want to keep your money in savings accounts for a short time, it can be advantageous, but you should consider peer-to-peer lending for long-term investment.
P2p lending Vs. property Crowdfunding
In real estate or property crowdfunding, an investor can purchase a property and become a shareholder with other investors. Although it requires a small amount to invest, the returns are also inconsistent. Real estate crowdfunding offers 3 to 7% returns, whereas, in p2p lending, you can earn even 10 to 15% interest per annum.
P2p Lending Vs. Company Bonds
Investing in company bonds can be a risky option. It is because if the company fails to meet its financial goals, you may end up losing all your money. Moreover, you can not earn high returns by investing in company bonds. You can earn only 3 to 7% returns which are relatively lower than peer-to-peer lending. It is better to invest in FCA-regulated platforms to earn high returns without taking a greater risk.
P2p Lending Vs. Crypto lending
Crypto lending falls in the same category as p2p lending. The difference is that this type of investment uses cryptocurrency instead of monetary assets. The interest rate in crypto lending is lower than the p2p lending. However, the risk in crypto lending is reduced as cryptocurrencies are exchanged rather than exchanging financial assets.
P2p Lending Vs. Stocks
A stock market is a form of investment that has been present for hundreds of years, but it is ideal for long-term investment. The returns on stock and share can go up or down unpredictably, depending on the growth of the company you invest in. You have to wait for several months and even years to get a suitable return. If you want to earn quick returns, peer-to-peer lending can be a perfect option.
Why is P2P Lending Getting Popular?
Investing in p2p lending is an easy and straightforward process. You do not need to go to the market or bank and invest through online p2p platforms. You can manage your investment portfolio through any device by logging into your account. These are some main reasons investors prefer to invest in p2p lending instead of traditional investment options.
Moreover, p2p platforms allow you to set interest rates and lending criteria. You can choose borrowers of different risk levels and invest in multiple loans to diversify your portfolio and reduce risks. There is also a fixed period investment. For example, you can invest in a loan for 3 to 5 years and can get returns as monthly installments.
Peer-to-peer lending offers numerous advantages to the investors, such as adequate interest, diversification, control on capital investment, variety of p2p loans, security, and asset liquidity. Many p2p platforms have secondary markets where you can sell your loans if you need money. Due to these advantages and convenience, most investors are attracted to p2p lending.
The interest rate on peer to peer lending varies from the p2p platform depending on the type of loan and the borrower you choose. Always keep in mind that the more the risk, the more will be the interest rate. You must look beyond the interest rate and consider the risks associated with peer-to-peer lending. If you take proper measures to reduce the risks, p2p lending can be a great alternative to traditional investments. Furthermore, you should shop around and choose a well-reputed platform that offers competitive returns.