P2P lending: everything that you should know today

by Abdul Shaikh
P2P lending

The term peer-to-peer resembles the idea of person-to-person. A peer-to-peer system (crowdlending) is therefore a form of loan that is processed between two private individuals. There is no intermediary bank for a peer-to-peer loan. The bureaucratic effort and the high fees of the banks are eliminated with P2P lending. With the help of the best p2p lending software, investors can set up a broad portfolio and thus always keep an eye on risk when they want to invest money safely. Investors benefit from higher returns compared to other asset classes. 

Difference between crowdfunding and crowd investing

Crowdlending is basically a sub-form of crowdfunding. While funding in principle includes all ways to collect funds on an online platform, crowdlending specifically refers to lending from private to private. The term must also be differentiated with regard to crowd investing. Here, the possibilities of crowd financing are used to make a specific investment. This can be a property, for example. There is a clear financial interest behind the investment.

How does P2P lending work?

In order to grant a P2P loan and to achieve attractive interest rates in this way, an interested party must first register on a platform. After registration with the best p2p lending software, the lender or investor can view a list of investment opportunities. The return that can be achieved with a P2P loan depends on the respective risk class. There are several features that make P2P lending software the king – fast and easy lending options, financial insights in real-time analysis, various lending sources, in-depth reporting, assessment of risks, tracking systems, self-service, and much more.

Like all financial investments, crowd lending (P2P) also has advantages and disadvantages –

Potential returns: P2P loans offer investors high potential returns. Investments are divided into different risk classes so that investors can weigh risk and return. Private investors even get special online tools with which they can quickly get an overview.

Sensible investment: It is important to many investors that their money brings profit, also serves a meaningful purpose at the same time. With crowd lending, investors know that they are supporting private projects.

Transparency: P2P loans are largely transparent and understandable. Quite simply, it is a matter of direct loans with fixed conditions compared to many other asset classes, which are so confusing that even bank advisors often cannot oversee the process.

Possibility for small investments: Investors can invest very small amounts in crowd lending. This means that the financial investment is not only accessible to a large number of investors but also enables uncomplicated risk diversification. For SMEs, there is nothing better than P2P lending. 

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Disadvantage –

Default risk: There is generally a default risk with P2P loans. To counteract this, investors should only invest in assets in their desired asset class. We also recommend the tried and tested strategy of risk diversification, so that chances of fraudulent activities are eliminated.

Types of Investors for P2P Lending

A basic distinction can be made between 3 types of investors. There are the following classifications –

The security-oriented investor type: He is careful to avoid risks and is satisfied with minimal returns. He is also willing to forego his money over a longer period of time.

The balanced investor type: A balanced investor seeks the balance between balanced and profitable asset classes.

The income-oriented investor: More than a risk-taker, this type of investor aims to generate great returns. He can accept losses because he has a secure starting position.

P2P lending as an asset class is suitable for all three types of investors. The personal values ​​of the investor also play a major role in the composition of the portfolio. Knowing the personal history of the borrower can be a special attraction for some investors. The feeling of personally supporting someone can only be found in a few asset classes. On the other hand, it is also important for many not to have a personal connection to their investment.

Peer-to-Peer Loan for Borrowers

There is hardly an easier way to obtain a loan than through a peer-to-peer network. Registration is free of charge for investors and borrowers. Fees are only incurred if the placement is successful. Peer-to-peer lending makes lending much easier. If you want to take out a loan, you first register with the best p2p lending software and then enter information about the desired loan amount and the purpose. Investors can view these posted listings and then decide which projects to invest money in.

The repayment of a loan is carried out according to the same scheme as with a bank: the borrower transfers monthly installments back to the lender. No investor would like to invest money if the borrower does not have a meaningful tender. It is therefore particularly important for loan seekers to describe themselves and their loan requirements as detailed and comprehensible as possible. The more detailed and better the statements made by a borrower, the higher the chances of getting a loan is. 

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Final conclusion

Peer-to-peer loans offer investors an interesting investment opportunity. You can earn money online from the comfort of your home. Compared to other financial investments, peer-to-peer loans score mainly because they are transparent with regard to risk and return, enable fixed interest income and are independent of fluctuations on the stock market. It is an understandable and innovative financial product that allows investors in the secondary market to choose exactly which project to support. Borrowers apply for loans via an online platform that is financed by one or more “peers” (investors). The investors earn interest on the loaned money.

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