Peer to peer lending has been getting popular all across the UK for several years. There are numerous reasons for its growth and popularity, such as it makes the lending and borrowing process much easier than before. You do not need to go to a bank or traditional lender to borrow or lend money as p2p lending platforms offer this facility online. These platforms match borrowed directly with the potential lenders and provide them with an opportunity to earn high-interest rates. However, some investors are conscious of this private lending and consider it a high-risk investment.
Since 2008 the interest rate on traditional investments has been shrinking continuously. As a result, investors are looking for alternative investments that can bring attractive returns. You can invest in p2p loans to get higher returns than any other conventional investment and bank savings account. If you are interested in p2p lending but worried about the risks, here in this article, we are going to describe reasons that help you understand why you should invest in peer to peer loans.
High Returns On Investment
The most significant thing that attracts investors is the high-interest rate. You can make double-digit returns from p2p lending even in this low-interest-rate environment. However, you must keep in mind that these returns are not guaranteed, and there can be a loss in some cases. But it is possible to get returns in this range when you have a highly diversified portfolio. Therefore, it is always a good idea to make peer-to-peer investment a part of your investment portfolio along with other asset classes.
So if you are an investor looking for high returns, it is worth considering this option but keeping in mind all the risks associated with it. When you know the risks, it is easier for you to take measures to mitigate them and get the most out of your investment.
Self Determined Risks
As we described earlier, most investors are concerned about the risks involved in this investment. However, we can say that the risks in peer-to-peer investment are self-determined as platforms allow investors to decide in which loans they want to invest money. For example, you can select only borrowers with high credit scores to keep the risks of default to a minimum.
In addition, you can reduce the risk by diversification. P2p platforms allow you to diversify your portfolio by spreading your investment across multiple loans. In this way, if a borrower defaults, the loss is limited, and you will not lose all your money. You can continue earning profit from other loans even if one or two borrowers default. Many p2p platforms also provide a cover against default in the form of contingency funds. It also reduces the credit risk to some extent.
Ease And Flexibility
Another good thing about peer-to-peer investment is that it is a simple and straightforward process. All the platforms operate online, thus providing ease and flexibility for investors. You can see from the online reviews of investors that p2p platforms are helping them to invest money in a convenient way. There is no need to go to a bank or an agent’s office. You can select a platform that meets your requirements and create an account as an investor. All the processes, from depositing money to finding borrowers and lending to getting repayments, takes place online.
You can also manage your portfolio online by logging in to your account from any device. The types and terms of loans vary from platform to platform, and you can choose one that meets your investment goals. For example, you can invest in individual loans, business loans or bridging loans according to your investment goals. Moreover, you can automate your investment, which is impossible with traditional lending or investing money through banks.
Source Of Passive Income
One of the great advantages of peer to peer lending is that you can generate passive income through it. This is because borrowers repay the loan amount along with the interest rate on a monthly basis, and you will receive investment amounts and the profit regularly. This way, you can have an additional income source that flows automatically. With passive income, you can get regular income without spending much time and energy. In addition, unlike traditional investments, this investment is least affected by the changes in the economy.
If you are already making passive income through rental income or dividends, you can expand your portfolio by adding p2p loans, and it can also help you in reducing risks. It is an excellent way to make a regular income and gradually expand it.
You can still continue getting profit from p2p investment even if the economy is in recession. This is because stocks are highly affected by the changes in the economy and result in low profit. On the other hand, loans are independent of the economic turbulence and help you in getting higher returns.
P2p Investment Involves Low Fees
As p2p platforms operate online, the operational charges are lower than the banks and traditional financial institutions. As a result, it offers maximum benefits to investors and charges low fees compared to other investments. A number of platforms are present in the UK offering different fees, which means you can find the cheapest and best ones by shopping around and making price comparisons. People who invest in stocks usually have to pay high fees or issue surcharges. However, it is not the case in p2p investment, and the high cost will not diminish your returns.
Bottom Line
Peer to peer investment is an excellent source of earning high-interest rates and generating passive income. There were only personal loans in the beginning, but now many platforms offer property loans or bridging loan that help you invest in a secure way. Although p2p investment offers numerous benefits, do not jump into this investment by seeing the high-interest rates and keep in mind all the risks associated. Remember that the higher the interest rate, the more will be the risk, so create a portfolio with a varied mix of borrowers and loans to mitigate the risks. Get benefit from this alternative investment and maximize your returns by taking all the possible measures.
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