With the growing inflation rate, all the investors are looking to add new options to their portfolios through which they can earn high returns. In this aspect peer to peer lending has been getting popular among investors for the past few years. It works by bringing borrowers and lenders to an online platform where they can borrow or lend money without the involvement of a bank or any financial institute. Investors who lend money may take a risk, but the benefits of peer to peer lending are also substantial. It benefits both the borrowers and lenders. Borrowers can get quick approval and access to funds while investors get high-interest rates compared to traditional loans.
Here we are describing some reasons why you should add p2p lending to your investment portfolio.
The most significant reason to consider p2p lending is that it helps you in the diversification of your portfolio. Every investor knows well that a good portfolio is one that is diversified across different investment options. If your portfolio has no diversification, you should definitely add p2p lending to your portfolio. It offers you a profitable portfolio diversification that is more beneficial than other short-term investment options.
P2p lending is carried out through online platforms, and these platforms pre-screen all the borrowers for safe lending. You can lend money to individuals and businesses. Moreover, you have the option to spread your investment across multiple loans to reduce the risk of losing money.
Typically, people think of peer-to-peer lending from the borrowers' perspective as it offers a fast, flexible and easy way of borrowing. However, it provides investors with an attractive return on investment compared to traditional investment options. Typically the return you can earn from p2p loans ranges from 5 to 12% per annum. Always keep in mind to look at the fees that a p2p platform may charge on your investment, such as arrangement fees, administration fees, or broker fees. All these charges can affect the interest rate that you earn from the peer to peer loans.
Peer-to-peer lending is one of the safest ways of investment. The most common fear that lenders have while investing in p2p loans is borrowers defaulting on loan repayment. To mitigate these risks, the p2p platform conducts a credit and affordability check of borrowers prior to granting loans. P2p platforms categorise borrowers into low and high-risk categories so that investors can choose to invest in loans according to their risk appetite. All the efforts are made by platforms to keep the lending process safe, transparent and keeping the chances of borrowers default to a minimum.
When you invest in p2p loans, the interest rate you will earn is fixed along with a predetermined loan repayment schedule. Normally the loan amount and interest is repaid in monthly instalments. It is convenient for both the borrowers and lenders. Borrowers can easily repay the small instalments, while investors can get a regular monthly income. Moreover, investors do not need to wait for quarterly interest payouts or dividends like in equity investments.
The investors looking for term investment that matches their convenience and schedule and at the same time offers high fixed interest rates, peer to peer lending is an ideal option for them. With peer to peer lending, investors can set criteria, and each transaction has different terms according to the preferences of borrowers and investors. It makes p2p lending a popular and personalized way of lending. Usually, the loan terms vary from 6 months to 2 years. This flexibility allows investors to manage their investments in a way that suits their investment and liquidity needs.
The flexibility, convenience and high returns of peer to peer lending make it a must have for investors in their investment portfolios.