Last Updated on November 26, 2023 by Hina Rubab
Are you tired of fixed-rate investments that pay very little interest? You may find peer to peer lending a great alternative to savings accounts, stocks or bonds. P2P lending has become an area of interest for many investors who want to boost yield and diversify their portfolio. However, investors should also bear in mind that this investment also has some risks. Many investors are taking advantage of lending money to individuals in need at a high-interest rate through peer to peer lending platforms. At the same time, others think that it carries a high risk of losing money. That is why here in this article, we are going to describe why it is good to invest in peer to peer lending UK.
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Since 2008 we noticed that the interest rates are shrinking, and it becomes challenging for investors to find a conservative investment to earn more profit. For such investors, P2P lending can be a great way to make high profits even in this time of low-interest rates. Through this type of investments, investors state that they earn up to 10% annual returns. Although the returns are not guaranteed, and sometimes low returns may occur. But with good diversification, it is not a problem to earn double-digit returns. Therefore, investors who want to earn above-average returns in this environment of low return rate can use P2P lending.
Ease And Flexibility
Peer to peer lending is straightforward and simple. That is why investors find it easier to invest their money. Many online reviews show that investors find it very convenient to invest money through online platforms. All the processes of P2P lending, from depositing funds, lending money to borrowers and getting back monthly repayments, are online, and it saves inventors from the hassle of going to banks or agent shops. You can see your portfolio online from anywhere, just logging in to your account on a P2P platform. Furthermore, Peer to peer platforms offer an option of auto-invest that helps you manage your portfolio efficiently. This convenience can not be possible with conventional investments that involve lengthy procedures and too many contracts.
Easy To Mitigate Risk
As we said earlier, many investors are afraid of the risks involved in P2P loans. However, the risk can be easily reduced, or we can say that the risk is self-determined. It is because investors can choose which loan they want to invest in. For example, you can select the borrowers with high credit ratings to lower the risk of borrower default. However, when you lend money to high credit rating individuals, the interest rates are relatively low.
Moreover, you can spread your capital across multiple loans to mitigate the risk. In this case, if one borrower defaults, the loss can be absorbed by the profit gained from the other loans. Some peer to peer platforms also have contingency funds to provide you insurance against borrowers default. Through this fund, you can get your capital back, and the risk is thus minimised.
Source Of Passive Income
One of the major advantages of P2P lending is that you can earn a steady income through it. When you invest in peer to peer loans, the borrowers tend to repay the amount plus interest rate monthly. In this way, you can receive an income on a regular basis. Thus, investors can use peer to peer lending as a source of income that is independent of the capital market.
People who are already earning a passive income through rental income or dividends can use P2p lending to expand their portfolio. One thing that makes peer to peer significant from other investments is that p2p loans still work even when there is a recession. The value of a stock is affected by the changes in the economy, and the dividends are also reduced in such times. However, loans are always in demand and least affected by changes in the economy. Therefore, investors can use peer-to-peer loans to generate a regular cash flow and gradually expand their portfolios.
Low Charges And fees
Another advantage of p2p lending is that you do not need to pay high charges to start investing. Many providers or p2p platforms are present in the market, offering different fees and interest rates. You can choose a provider offering competitive rates and charging low fees. On the other hand, when you invest in the stock market, you have to pay high charges and fees. Similarly, When you invest in savings accounts or loans through banks, there are many overhead charges you have to pay. In contrast with peer to peer loans, you can get high returns by paying the low cost as administration or start-up fees.
How To Invest In Peer To Peer Lending?
Once you understand the benefits of investing in P2P loans, you may think about how you can start investing. It is very easy to start peer to peer investment. However, you need to set your financial goals based on how much you want to invest and what you will make from the monthly income. Secondly, select a peer to peer platform with a good track record and competitive interest rates. After choosing the platform, open an account and deposit funds into your account. You can choose the loan type in which you want to invest. Remember, as a new investor; you should start from small capital and spread your investment across multiple loans.
After investing in different loans, you must monitor your progress at least once a month. If you find that the interest rates are low, you can change your strategy and earn high returns.
Conclusion On peer to peer investment
Investing in peer to peer lending is a cost-effective, convenient, and flexible alternative to traditional investment options available these days. With peer to peer loans, you can not only earn high returns but also make it a passive income source. Even if some risks are associated with this type of investment, you can reduce these risks by taking some measures and expanding your investment portfolio.