Facebook Twitter Instagram
    • Home
    • About
    • Blog
    • Contact
    Trending
    • E-Commerce Mastery: Tiny Tricks That Make A Ton Of Money
    • Secure the Long-Term Success of Your Restaurant Business with these Tips
    • How to Build a Diverse Crypto Portfolio for Long-Term Success
    • Navigating the Car-Pawn Financing Process in Today’s Market
    • Budgeting Hard for Your Road TriP
    • Steps for Creating a Budget
    • Helping Loved Ones with Elder Debt
    • Precious Metals or Crypto: Which is the Smarter Investment?
    Facebook Twitter RSS
    Disease called Debt
    Contact Me
    • About
      • Debt Story
      • Our Debt Progress
      • eBooks
        • 101 Ways to Earn Money From Home
        • Debt eBook
    • Start Here
    • Debt
      • Paying Off Debt
      • Debt Elimination Tips
      • Debt Success Stories
      • Debt Help Articles
      • The Gift of Debt
    • Money
      • Making Money
      • Saving Money
      • Budgeting
      • Investing
      • Life, Money & Relationships
      • Work
      • Frugal Recipes
      • Fun Stuff
    • Blogging
      • Start a Money Making Blog
      • Blogging and Link Ups
      • Blogroll
    • Disclaimer
    • Cookies/Privacy
    • Contact
      • Advertise
      • Hire Me
    Disease called Debt
    Home»General»5 Things You Need to Know About Peer to Peer Lending
    General

    5 Things You Need to Know About Peer to Peer Lending

    JennieBy JennieNovember 21, 2019No Comments5 Mins Read
    Facebook Twitter Pinterest LinkedIn Tumblr Email
    Share
    Facebook Twitter LinkedIn Pinterest Email

    Peer-to-Peer lending or simply P2P is a fast-growing asset class in the diverse world of finance and banking. While it’s not a completely new concept, its popularity has grown tremendously over the past decade mainly due to the many benefits it offers the market.

    So, what’s P2P lending?

    The simplest way to define P2P lending is that it’s kind of a marketplace where savers and borrowers meet and transact directly with one another. Usually, P2P platforms use proprietary algorithms akin to those used by dating sites to match people or businesses that want to lend to those that want to borrow loans. They also facilitate the secure transfer of money and help to track all the necessary records until money is paid back in full.

    As you’d imagine, a lot more goes into the entire process including the risks involved; remember, we’re talking about unsecured or hardly regulated loans here. But as long as you understand what you’re getting into and are aware of all everything involved, you shouldn’t have a problem lending or borrowing P2P loans.

    Here are five things you need to know about P2P lending and how you can avoid falling into common pitfalls.

    P2P lending is riskier than standard banking

    This is arguably the most important thing you need to know before joining a P2P platform. Suppose you decide to do peer-to-peer lending at Crediful.com for example, and the person you lend to loses his job and defaults the loan. In such a scenario, you’ll likely lose your money while the defaulter messes up their credit rating.

    This is probably something you won’t need to worry about when depositing money with a bank. This is because banks do not pass on their losses to clients and the reason they offer lower interest rates compared to P2P lending facilities.

    You can choose from several investing options

    If you’re getting into the P2P lending industry as an investor, you’ll be happy to know that there are a number of ways you can invest your money here. The most common strategy is the managed or automatic method that allows you to put your money into the platform and it does nearly everything else for you. Most platforms that support this method, however, allow you to make some personal choices including how much risk you’re ready to take, how long your money stays with them, and the returns you expect at the end of the lending period.

    If the above approach doesn’t sound appealing to you, there’s the semi-manual method that gives you more control over your money and investment choices. Here, you’ll be allowed to make decisions on aspects like who to lend to, how much money to allocate to which borrower, etc.

    Both of these options have their pros and cons and it’s upon you to weigh your options and choose what works best for you.

    Do not forget the fees

    Different peer-to-peer lending platforms charge different fee rates mainly for facilitation and management. Obviously, you want to work with a company that charges the lowest fees, whether you are in it for loans or lending. In most cases, P2P platforms charge lenders what they refer to as management fees while others take a share of the money from the borrower before the withdrawal.

    Be sure to conduct due diligence on your preferred company to understand their fee criteria as this can have a significant impact on how much returns or loan amount reaches you in the end.

    Your investment will likely be long-term

    A majority of P2P platforms lock your money for the entire loan repayment period which can range from 3-5 years. As such, you’ll have to prepare yourself for the long wait unless your preferred platform allows for early withdrawal as in the case of P2P lenders that support secondary markets. This means you can sell (or simply transfer) your loan to another person if you want to free up your money again.

    Success lies in risk diversification

    We mentioned earlier that defaulting is part of what you can expect when using peer-to-peer lending facilities to make money. The good thing however is you can significantly cut down on this risk by using risk diversification strategies like fractionalization and risk grades when engaging borrowers.

    Fractionalization is simply the process of spreading your money on several loans as opposed to funding one or a few of them. What this means is that if one defaults, you do not lose all your money. On the other hand, it’s important that you’re extremely careful with the borrower’s credit rating which shows how good or bad a prospective borrower is when it comes to paying off their debts. This will help you dodge serial defaulters or those at high risk of defaulting due to factors like inconsistent incomes or commitment to other lenders.

    Have you used a P2P lending platform before? How was your experience? We’d love to hear your feedback.

    Share. Facebook Twitter Pinterest LinkedIn Tumblr Email
    Jennie

    Hi! I'm Jennie, owner and editor of Disease Called Debt. This site is a helpful resource for you if you’re trying to get out of debt, save money or you just want to manage your money more effectively.

    Related Posts

    3 Ways to Free Up Your Tied Up Cash

    November 25, 2022

    Are You Financially Prepared for a Down Economy? 

    April 14, 2020

    Save money on your bills throughout 2020

    January 8, 2020

    Leave A Reply Cancel Reply

    CommentLuv badgeShow more posts

    E-Commerce Mastery: Tiny Tricks That Make A Ton Of Money

    May 6, 2025

    Secure the Long-Term Success of Your Restaurant Business with these Tips

    February 7, 2025

    How to Build a Diverse Crypto Portfolio for Long-Term Success

    January 2, 2025

    Navigating the Car-Pawn Financing Process in Today’s Market

    November 28, 2024

    Budgeting Hard for Your Road TriP

    November 23, 2024

    Steps for Creating a Budget

    October 3, 2024
    Disclaimer
    Any views and opinions expressed on this site are either my own or from unqualified sources. I hope you find the articles here helpful but please note that these should not be taken as any form of professional financial advice. If you need financial advice, please consult a professional.
    Popular Posts






    Recent Comments
    • Abigail @ipickuppennies on 5 Reasons to Apply for a Small Business Loan
    • Jax on Innovative Ways to Fight Your Debt
    • Syed on 5 Ways to Add Value to Your Property
    • Jax on 5 Ways to Add Value to Your Property
    • Kelly on What to Expect from a Career in Finance
    Search Disease Called Debt
    Categories
    Archives
    Facebook Twitter
    Blog Highlights
    Business

    E-Commerce Mastery: Tiny Tricks That Make A Ton Of Money

    By JennieMay 6, 20250

    If you want success in e-commerce, it isn’t always about spending more on ads and…

    Secure the Long-Term Success of Your Restaurant Business with these Tips

    February 7, 2025

    How to Build a Diverse Crypto Portfolio for Long-Term Success

    January 2, 2025
    Latest Posts

    E-Commerce Mastery: Tiny Tricks That Make A Ton Of Money

    May 6, 2025

    Secure the Long-Term Success of Your Restaurant Business with these Tips

    February 7, 2025

    How to Build a Diverse Crypto Portfolio for Long-Term Success

    January 2, 2025

    Navigating the Car-Pawn Financing Process in Today’s Market

    November 28, 2024

    Budgeting Hard for Your Road TriP

    November 23, 2024
    Facebook Twitter RSS
    • Home
    • About
    • Blog
    • Contact
    © Copyright 2025, Disease Called Debt

    Type above and press Enter to search. Press Esc to cancel.