Peer to peer lending is otherwise known as social funding. You select your own set of borrowers to whom you lend money out. Peer to peer lending companies thoroughly eliminate banks and financial institutions which act as middlemen. That is why borrowers and lenders seem to be in a win-win situation, with this form of investment. P2P investments or market place lending has started gaining prominence ever since 2005. Let us go on to unveil some of the most lucrative benefits a lender has, with a P2P investment.
Higher returns on investment
With a growing pioneer leader like LenDenClub, you are assured of a 20-25% returns on investment, with a moderate degree of risk attached. You lend money to borrowers whom you know. Though you can fall under the risk of default payments from borrowers, you have a unique initiative brought out by LenDenClub, which is also known as LPF (Lenders’ Protection Fund). Your capital is given a 100% protection against market or individual instabilities. Whereas your equities or mutual funds provide you with a 15% return on investment. Fixed deposits provide you with 8-10% returns on investment.
In a peer to peer lending market the money is credited into your bank account directly. And you are assured of monthly payments falling into your account. With FD’s, or mutual funds, you have your dividends credited every 3, 6 or 12 months. And there is no lock-in period with regard to P2P investments. You can take your money whenever you feel like. With the traditional investments, there is a minimum lock-in period only after which you have access to your principal money.
Spread of risks
Micro-lending is one aspect of Peer to peer lending, which is very attractive to investors as such. At LenDenClub, all you have to invest is a minimum sum of Rupees 5000. Even if some of your borrowers to whom you have lent money, default, you lose out on the bare minimum. In addition to that you have LPF which protects your capital.
You can spread your risks evenly and widely. Say you have lent money to 10 borrowers, Rs. 5,000 each at 25%. If one of them don’t pay his EMI, you will still receive Rs. 45,000 principal plus 25% interest on the same. Due to default by one borrower, your returns will come down by 5%, but you are still netting 20%.So, your risks are diversified and spread evenly.
This is how peer to peer lending companies are able to provide you with better returns of investment over traditional genres.