Peer-to-peer investment is a good alternative to other traditional investment methods because when the two are compared, peer-to-peer platforms come forward as a better option as it deals with two issues in particular:
- As saving rates are low, private investors/lenders would need returns
- For supporting fund deals and grow businesses borrowers need money
Should one then invest in P2P lending? There are two different views so let’s compare them.
- P2P lending or Crowd funding?
P2P Lending, also known as Crowd lending has similarities as suggest the names. The only difference is, crowd funding is a means of funding a product and receiving a product while P2P lending involves buying parts of loans with the aim of getting the principle amount plus profit.
- P2P or Real Estate Deals?
Comparing the two shows that P2P is a better option. While real estate crowd funding show that 3-7% returns are generated, with P2P lending10-15% is expected. But there is risk because real estate investing has less risk involved and it’s easier to recover debt.
- P2P lending or Bank Savings?
Having huge sums tucked away in your bank account would ultimately result in losses due to inflation if product prices sky rocketing. Perhaps side lining the money in saving accounts may be a good option for short term goals.
- Comparison with Company Bonds
Company Bonds often do not provide the security needed for firm investments. Since you’re pouring money directly into the company, instances of companies failing entirely may result in loss of capital. Adding to that, bonds, not even fancy is mostly centered on 3.5-7% payment.
- Stocks and P2P Lending
With P2P lending securing 26% higher returns in researches carried out in 2018, statistics are clear in showing the more ‘investment-friendly’ option of the two. Stocks would not be discouraged for long-term goals by any means, but if your plan involves earning money right away, P2P lending would be a more suitable.
There are some drawbacks of P2P lending that one must keep in mind
- Risks will be involved
Realistically like several others, P2P lending involves moderate risks. Keeping in mind the state of the world economy, it is possible that loan originators and platforms would suffer. However, besides the obvious risk management steps, diversifying and investing little amount in each loan relating to the right platforms can help make up for it.
- Time is Crucial
Investments on P2P platforms can be covered in a matter of minutes using the platforms auto investment strategy as available in Mintos and Twino. However, if you choose to invest in a variety of loans and platforms, it is understood that a considerable chunk of your time would be spent on P2P investments.
Net worth reports and monthly income reports of several FIRE bloggers fail to make the cut, not even being helpful enough for basic concerns as the risk of capital dwindling due to loan or platform originator bankruptcy.
Some benefits of P2P lending also come forth
- Good returns
Very few investment classes provide the ease as P2P investments. They are easily accessible to an average person with high returns and are much less risky than the other option of crypto currency. This is due to high technical barriers of entry and meeting and high complexity.
- Learn for the Benefit
As all important dealing investments require a good amount of learning to make the best choice. Whilst knowing the ins and outs of investing in differing assets classes I highly recommended that it can be easily covered in P2P platforms and crowd funding websites, awareness regarding your own reaction which is needed before you decide the nature of your investment.
It is well understood that pros and cons exist, and P2P lending is not void of such reality. Returns are at risk if the wrong choices are made but if insured that you diversify correctly P2P platforms, they can yield a very positive experience as Mintos has promised and kept its repute up to mark.
Michael started with a master’s degree in finance before he went into technology and coding. He is now a freelance journalist and video producer living in Berlin, Germany. When he doesn’t write, he will travel many countries.