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Why Is P2P Lending More Popular Than Ever?

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Interesting contributed post today on why P2P lending is more popular than ever. I'd love to hear your thoughts in the comments.

why p2p lending is more popular than ever

If you haven’t heard of P2P lending, you may want to pay attention to it now. P2P or peer to peer lending is well on the way to replace the traditional banking system as the dominant form of lending.

When you look at the facts and figures, it is really not hard to understand why. There are companies which facilitate this by serving as hosts. If you are interested in investing in this venture, or you are looking for a loan yourself, you can consult this article to learn the basics:

Investing in P2P Lending Is Better than Having Your Money in Savings Accounts

In the USA particularly, but in other countries as well, keeping your money in savings accounts has become unprofitable. The Fed keeps the interest rate at zero, which means that there’s not much money to be made that way. In the same vein, banks keep yields from savings at an equally low level.

On the other hand, P2P loans offer a way to earn a decent amount of money. However, it is far less volatile and unpredictable than, for instance, cryptocurrency market. The algorithms and methods have been perfected over the past decade which ensures that the market is stable and that the yields are enticing enough.

How Do You Start?

Starting your own loan operation is fairly easy. The first thing you need is to choose your platform, meaning a trustworthy financial organization to handle the whole P2P loaning process. Once you select your carrier, so to speak, all you need to do is link your bank account to your P2P loaning account.

The next step is adding some money to your account. The larger the sum, the larger the number of potential borrowers you can service and therefore your profit margin increases accordingly.

How Are You Protected from Defaulting Loans

You are able to choose what kind of loans and what kind of potential customers you want to loan your money to, which greatly increases your chances of successfully running your loaning operation. People looking for money are ranked according to their credit score and separated into categories, from best to worst.

However, there’s a catch. If you only choose the lowest risk clients, your profit margins will be low, because the interest on these loans will be lower. On the other hand, if you loan to the high risk clients, your profit can be drastically higher, although you risk losing your investment, too.

Fortunately, there’s another layer of protection. You do not give out full loans to each person, but only a small percentage of it. Most people limit their loans to about $20-30, so even if one of the loans defaults, nobody will be seriously affected and will be able to cover the losses. Most people diversify their loans to all categories, mixing the high risk – high yield loans with the safer low risk – low yield ones.

What about Stock Market Fluctuations?

P2P lending has very little to do with the stock market, meaning it is not very dependent on the current situation on the stock market. That is just one more reason why P2P lending is so popular.

Essentially, investing in the P2P platform ensures that you are protected from the volatility of the changing stock market, which is why more and more people are investing a part of their portfolio into this area of finances. Not only is your money well protected from the stock market crashes, but it is also able to earn you a steadier and more secure income as well.

  • Desmond Mar says:

    Good sharing. Indeed P2P lending is a good choice as an alternative investment that can helps to diversify your investment portfolio and yield steady good returns.

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