Generating returns between 10 to 15%, many online platforms known as peer to peer lending are now rising in the financial industries, catching the attention of businessmen and investors alike. It’s almost every week that a new company puts out and starts bringing together anyone and everyone who plans on doing away with banks and other traditional financial institutions.
But as peer to peer lending becomes a craze, it’s easy to get pulled into the mainstream. Wise investors will most likely wonder if it’s worth the curiosity. Should you take on this alternative investment strategy?
But what exactly is P2P lending? Most websites like Zopa, MoneyEgg.com, RateSetter, or Funding Circle normally bring in both potential investors and borrowers into a single platform, allowing both parties end up benefiting from rates that would be higher compared to banks.
Because peer to peer lending websites operate in a multitude of ways, investors are benefited in as many ways. But the general idea is that those who can lend their money get more returns from these platforms because of the higher rates they are promised. The investor is allowed to decide how much he or she is willing to lend and on what time frames or periods, and within five years alone returns could go as much as 4.9% interest. Websites like the Funding Circle, however, offered returns of 5.7% as average while others such as MoneyEgg.com offer as much as 13% in returns.
And considering their current alternative (banks), it’s no wonder investors are very much attracted to peer to peer lending. Staying with banks would only mean staying with the meager floor interest rates – something that heavily discourages lending and investments.
Of course, this newfound alternative is not without risks. Peer to peer lending is a very new niche in the investment world, so governments are still in the works for creating regulations, let alone implementing them. Regulators are yet to impose minimum capital requirements as well as methods to protect the rights of investors and make sure they’re able to get their returns.
Other risks include not being able to have full control over your money. Lock-in periods are not always at the choice of the investor (although platforms provide that liberty initially). But because every peer to peer lending website has different rules, you can’t be too sure.
And then there are those websites that might be overstating their promises. Some websites tell their clients some potential return, without accounting for necessary costs like charges, rates, and taxes, making the actual return almost half of what was promised.
But this isn’t something some research and caution can’t prevent. It’s more than just theory that a person CAN make more by investing in peer to peer lending than any traditional bank as long as the money is played wisely. Doing your research and ascertaining all the charges and fees will give you a good idea of what to expect and whether you should pursue an investment or not. With that said, peer to peer lending can be very rewarding.
Do you want to learn more about how peer-to-peer lending from MoneyEgg.com can boost your personal finance? Then visit MoneyEgg homepage – http://www.moneyegg.com
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