Our guide to how to invest with confidence, and a few tips on what not to do when you’re considering peer-to-peer lending.
P2PL – an explanation
As an online platform connecting borrowers and lenders, peer to peer lending has managed to afford better rates than traditional banking. This process has allowed individuals as well as businesses, hedge funds or trusts to invest or borrow money. With every step from application to credit assessing and granting of funds being online, better rates are achieved. Without additional staff for various departments or large business premises to rent, the savings are instead passed on to allow low rate loans to lenders and higher rate returns to investors. Investors’ money is usually split over many different loans to ensure added security should one lender default on payment. Lending Club and Prosper in the USA were among the first P2P lenders to begin transacting in this way.
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The Do’s when investing through P2P lending
It is obviously important to do some basic research on the P2P lending company you are considering investing with. Have a look at its track record relating to defaults and whether the loans are secured or unsecured. Many P2P loans are unsecured but some platforms do offer some security if investments are property related. When you invest, it is advisable to spread the investment over various loans. By splitting your money, the risk of losing funds in the event of a lender defaulting on payment will have less of an impact and should allow you to recover through your other loans. Invest a smaller amount initially and choose your risk levels well. There are various risk levels which allow for better returns depending on higher risk. Re-invest your cash as you start earning interest to build a better portfolio and earn better returns.
The Don’ts when investing through P2P lending
As a new peer to peer investor it is important to know that you should not jump into any investment without knowledge. Do not invest your life savings in P2P lending and be sure to keep a personal savings fund in case you need money instantly. Only invest extra cash that you will not need in an emergency at some point. Don’t rush into investing large amounts of cash but instead start small until you are more familiar with the process and comfortable enough to invest more money. Make sure you diversify your investment on loans and screen lenders so you do not put your funds at a higher risk than you are comfortable with.
Once you have familiarized yourself with P2P lending and the investment opportunities available, you can have a look at CompareLend.com. With our online tool that allows you to fill in the criteria of what investment you are looking for, you will be presented with various platforms for your chosen investment. By taking the hassle out of the search, CompareLend.com ensures your peer to peer investing experience is a pleasant and efficient process.