With the evolution of fintech, the growth of new lending businesses has started. Peer to peer lending is one of those lending businesses, and it has become popular within a short space of time. It brings lenders and borrowers together on the same platform. In the past, when you wanted to take out a loan, you had to go to the banks and complete lengthy paperwork. Even after that, there was no confirmation that you would get the loan. But now, p2p platforms make borrowing and lending straightforward. There is no need for a middleman like banks or other financial institutions.
Peer-to-peer lending facilitates transactions and allows people to borrow money even if they have bad credit scores. Due to the flexibility and benefits, p2p lending attracts an exponential audience throughout the world. Let’s take a close look at the benefits of this alternative lending option so that you can understand why it is gaining popularity.
Advantages Of P2p Lending For Investors
Here are some benefits of p2p lending for investors:
Over the past few years, traditional investments like bank saving accounts have struggled to offer sensible interest rates. They provide a low-interest rate which is not enough to keep up with the interest rates. That is why investors are looking for investments that offer higher returns with low risk. P2p lending is an alternative investment option that provides an interest rate above the inflation rate. According to research, people who invest in alternative lending are earning 18-26% gross returns per annum.
Investment Portfolio Diversification
One of the best ways through which investors can reduce the risk to their assets is diversification. You can spread your investment across multiple asset classes. There are fewer chances of being affected by the economic turbulences with a diversified investment portfolio. With the emergence of p2p lending, investors find a new low-risk option to add to their investment portfolio. Moreover, you can make your portfolio more diversified by spreading your investment across multiple loans so that there is less risk of losing money due to borrower defaults.
Platforms Are FCA Regulated
Another advantage of investing money in peer to peer lending is that all the p2p platforms in the UK are regulated by the Financial Conduct Authority (FCA). It ensures that these platforms follow a framework and offer a transparent service to the borrowers. The involvement of FCA also provides peace of mind to the new ip2p investors. Because according to FCA rules, p2p platforms have to provide all the necessary information to the customers so that they can make informed investment decisions.
Although p2p investments are not protected by the Financial Services Compensation Scheme (FSCS), most p2p platforms offer contingency funds to investors. These funds cover the investors in case of borrower default. Moreover, these platforms also carry out credit checks, affordability and fraud checks of the borrowers before granting loans. It also ensures that your money is lent to creditworthy borrowers who can repay it on time.
Peer to peer lending platforms also offers investors a facility to withdraw their money when they need it. There are other lenders present on the platforms who replace you in the loans you wish to withdraw from. However, you have to invest for a long time to get higher returns.
Advantages OF P2p Lending For Borrowers
P2p lending also offers benefits to the borrowers, some of which are as follows:
Fast And Convenient Application
All the p2p lending platforms operate online it means borrowers can make a quick and convenient application without the hassle of going to banks or lenders offices. With p2p platforms, you can get immediate access to loans. On p2p platforms, there is a list of lenders who are waiting or borrowers, so sometimes you will get the money very quick that is within a few hours.
Lower Interest Rates
The interest rate of p2p loans is lower than the traditional bank loans. In addition, as there is no intermediary involved and you are lending money directly from the lenders, there is no overhead cost that you have to pay. As a result, P2p platforms offer an interest rate that is feasible for both investors and borrowers.
Unsecured And Flexible Loans
Most p2p platforms offer unsecured loans, which means there is no need for collateral. As a result, you do not need to tie any of your valuable assets into the deal. It also makes the application process quick and uncomplicated, allowing borrowers to get quick access to funds. Furthermore, p2p loans are flexible than the other types of borrowing. You can get a loan at terms that suit you, and also, there are no early repayment charges if you have the money you can repay earlier to save yourself from paying more interest.
Business Opportunities With P2p Loans
Over a few years in the past, peer-to-peer lending has proven itself the best alternative lending source. It also offers opportunities for businesses, especially for small businesses and startups. Unfortunately, most traditional lenders and banks do not offer loans to startups or small businesses. With p2p platforms, you can take out small business loans and complete your goals. In this way, as a p2p investor, you can help businesses to grow and play a positive role in the success of your country.
From this article, we can see that peer to peer lending offers equal benefits for the investors and borrowers. Investors can invest money through online platforms and, in return, receive high returns than the traditional investment options. On the other hand, borrowers do not need to pass through lengthy paperwork and get quick access to funds. All of these benefits make p2p lending an excellent and popular option for investors and borrowers worldwide.