The concept of P2P lending has taken the investment world by storm in recent years, offering a streamlined and effective way of investing your capital to generate a return. The increasingly digitalised nature of investing means that P2P lending is a service that is accessible to people around the world – enabling people of all experience levels to get involved.
With that in mind, this article will discuss whether P2P lending is a good way of making money in 2021. The concept of P2P lending will be explored in detail, along with some of the main benefits of investing in this manner.
What is P2P Lending?
First of all, what is P2P lending? P2P stands for ‘peer to peer’ and does precisely what the name suggests – allows one party to lend directly with another party. Lenders and borrowers can interact with one another without requiring an intermediary, such as a bank or broker. This removal of the middleman comes with a whole host of benefits, which we will dive into later in this article.
P2P lending offers a solution for both sides of a deal, allowing lenders to invest their capital effectively and borrowers to obtain funding quickly and easily. Most P2P lending is conducted through a P2P platform such as the one we offer here at Lendermarket. Through these online platforms, both parties can come together virtually and receive the services they require seamlessly.
The future of P2P lending looks increasingly bright, as this area of investing allows users to get more favourable rates than the ones offered by banks. Furthermore, traditional investing avenues are growing increasingly outdated, leading many prospective investors to delve into the world of alternative finance.
Four Key Benefits of P2P Lending
As you can see from the section above, P2P lending is an exciting addition to the investment avenues you have in 2021. Found below are four of the main benefits of P2P investing, highlighting this area’s growing influence:
1. Quick and Easy Experience
One of the main benefits of P2P lending is how easy and accessible the service is. Due to the digital nature of P2P lending, the application process to borrow or lend money is seamless and can be completed from the comfort of your own home. Furthermore, P2P lending platforms can pair lenders and borrowers together very quickly – meaning that you can receive funding or facilitate an investment faster than with a bank.
2. Better Rates
Given the current economic climate in many countries around the world, interest rates are at record lows. The Guardian reported recently that this is forcing people to take additional risks with their money – which is helping to boost the popularity of P2P lending.
If you are a borrower, it’s common to find that the interest rates you have to pay on P2P loans are less than those charged by banks. This can be attributed to the lowered operating costs of the P2P platforms, as they avoid all of the expenses associated with physical locations and equipment. Lenders can also benefit from better rates, as the interest rates charged on savings accounts right now are marginal. So, overall, P2P lending can offer a better solution for both parties in a financial sense.
Another great benefit of P2P lending is the element of diversification that you can add to your portfolio. Diversification is one of the cornerstones of effective investing, helping to optimise your risk/return profile. One of the best ways to diversify your portfolio is to invest in various asset types – which is where P2P lending comes in.
Many P2P lenders will allow you to spread your investment over various loans, reducing the negative impact should one borrower default. Furthermore, the diversification benefits associated with P2P lending can also help solidify your passive income stream. Through consistent interest payments, lenders can create recurring income effortlessly – which can then be reinvested once again to diversify even further!
Finally, the flexibility offered by P2P lending is second to none and represents one of the most attractive elements of this area of investing. Allied Market Research noted that the P2P lending market is expected to grow at a CAGR of 29.7% between now and 2027. Much of this growth will be driven by investors keen to invest their capital more flexibly.
When you begin P2P lending, many platforms will provide options for which type of borrower you’d like to lend to. These options allow you to tailor your lending to fit your unique risk tolerance. Furthermore, some platforms even provide scope to liquidate your position before the loan matures. Through this process, lenders can ‘sell’ the loan to other parties, which adds to the flexibility of this investment type.
Overall, as the paragraphs above have highlighted, P2P lending offers an accessible and optimised way to deploy your capital in 2021. The ease with which you can invest through P2P lending is unmatched, leading large percentages of investors to choose this approach over other traditional assets. In the future, as P2P lending continues to grow, these benefits will become increasingly apparent – which is excellent news for investors of all experience levels.
P2P Lending – The Verdict
So, in summary, P2P lending is an exciting addition to the area of alternative finance, which offers a way to generate a return from the comfort of your own home. The diversification and flexibility benefits offered by P2P platforms are helping them rival traditional investment avenues, which is great news for prospective retail investors. Overall, the favourable rates and customisable nature of P2P lending makes it an excellent option for people of all income levels and backgrounds – so it’s well worth considering if you’re looking to make a return on your savings!