Peer-Peer Lending (p2p lending) has increasingly be gainning ground as an alternative investment of cash. In short, people with cash willing to lend their money to those in need, agree through a platform upon an interest rate and exchange cash for interest payments plus. Basically, if you have money on a savings account and you won’t be using them for a moderate or higher period of time you can put them into work for you, earnign a higher interest rate, than what you would earn from your savings account. Todays savings accounts interest rates are globally around 1%. While most P2P Lending platforms out there, offer interest rates of 7%+.
Peer-to-peer lending, also abbreviated as P2P lending, is the practice of lending money to individuals or businesses through online services that match lenders with borrowers. Since peer-to-peer lending companies offering these services generally operate online, they can run with lower overhead and provide the service more cheaply than traditional financial institutions. As a result, lenders can earn higher returns compared to savings and investment products offered by banks, while borrowers can borrow money at lower interest rates,even after the P2P lending company has taken a fee for providing the match-making platform and credit checking the borrower.There is the risk of the borrower defaulting on the loans taken out from peer-lending websites.
Also known as crowdlending, many peer-to-peer loans are unsecured personal loans, though some of the largest amounts are lent to businesses. Secured loans are sometimes offered by using luxury assets such as jewelry, watches, vintage cars, fine art, buildings, aircraft and other business assets as collateral. They are made to an individual, company or charity. Other forms of peer-to-peer lending include student loans, commercial and real estate loans, payday loans, as well as secured business loans, leasing, and factoring.
The interest rates can be set by lenders who compete for the lowest rate on the reverse auction model or fixed by the intermediary company on the basis of an analysis of the borrower’s credit. The lender’s investment in the loan is not normally protected by any government guarantee. On some services, lenders mitigate the risk of bad debt by choosing which borrowers to lend to, and mitigate total risk by diversifying their investments among different borrowers. Other models involve the P2P lending company maintaining a separate, ringfenced fund, such as RateSetter‘s Provision Fund, which pays lenders back in the event the borrower defaults, but the value of such provision funds for lenders is subject to debate.[
The lending intermediaries are for-profit businesses; they generate revenue by collecting a one-time fee on funded loans from borrowers and by assessing a loan servicing fee to investors (tax-disadvantaged in the UK vs charging borrowers) or borrowers (either a fixed amount annually or a percentage of the loan amount). Compared to stock markets, peer-to-peer lending tends to have both less volatility and less liquidity.
The platforms I have been using are the following and you can find my reviews on the relevant pages:
Grupeer although relatively new in the p2p lending market is constantly gaining ground as the platform lists higher interest rates backed by buyback guarantee.
For more insights you can read my review here.