Peer-to-peer loans have become increasingly popular in recent years. There are good reasons for this. However, as an investor, you should not ignore the potential risks. Peer-to-peer loans are becoming increasingly popular with investors.
Many investors are taking advantage of the opportunity to lend money to other individuals via the Internet. But there are also many people who are sceptical about peer-to-peer loans. They see private lending as too high a risk and prefer to invest their money safely. We will therefore discuss below why it can make sense to invest in peer-to-peer loans in the current climate. We also point out possible risks.
Five reasons to invest in peer-to-peer loans
Since the financial crisis in 2008, interest rates have been at a historically low level. For investors, this means that they can no longer find conservative or safe investments with which to earn good returns. Many customers of banks and financial services companies also do not want to invest in the stock market because they are afraid of losing their money. For these consumers, investing in peer-to-peer loans is an excellent alternative. Below are 5 reasons why it makes sense to invest in peer-to-peer loans:
1. High returns despite low interest rates…
With peer-to-peer loans, yields of 10 percent and more can still be achieved even in times of low interest rates. Of course, these yields are not guaranteed and lower returns may also be possible. On average and with good diversification, however, yields of this magnitude are not a problem. Investors who are looking for a way to generate above-average returns even in a low-interest environment should use peer-to-peer loans. For example, it is a good idea to invest only part of your assets in this segment.
2.Iinvestment horizon and risk can be determined by the investor
As mentioned at the beginning of the article, many investors shy away from the risk involved in investing in peer-to-peer loans. However, the risk can be determined by the investor himself, because each investor decides for himself in which loans he will invest. As an investor, you can choose, for example, to grant loans only to borrowers with a very good credit rating. Of course, the return is then somewhat lower. However, it still clearly exceeds the returns of conservative financial investments.
Furthermore, the risk can be easily diversified by distributing the investment amount among as many borrowers as possible. If one loan fails, the loss is small and can be easily absorbed by the returns of the other loans. On some platforms where investments can be made in peer-to-peer loans, there are even insurances against loan defaults. This means that the providers pay back the defaulted loan to the investors. This significantly minimise the risk.
3. The entire process is online, automated, simple and flexible
Peer-to-peer loans are simple and straightforward. Consumers who want to invest their money in peer-to-peer loans can do so conveniently online. The positive reports and experiences of numerous Mintos investors on My Investment Blog, show how online peer-to-peer loans can be invested in from the comfort of your own home. The own portfolio can always be viewed and changed online. It is even possible to automate your own investment process. This procedure is not possible at any traditional bank, where many contracts always have to be signed.
4. Peer-to-peer loans can be used to generate passive income
A major advantage of investing in peer-to-peer loans is that they generate passive income. The loans are repaid monthly and therefore the investment amounts and the interest earned are regularly returned to you as an investor. This way you can build up a nice additional income that flows automatically. With the passive income, investors can therefore generate a further source of income, which is also independent of the developments on the money and capital markets.
Those who already generate passive income through dividends and/or rental income can expand their portfolio in this way and protect themselves against defaults. Peer-to-peer loans are thus an excellent opportunity to generate regular cash flow and to gradually expand it.
The advantage is that peer-to-peer loans continue to work even when the economy is in recession. Share prices, for example, sometimes fall very sharply in economically turbulent times, and dividends are also cut. Credit, on the other hand, is always needed and is less dependent on economic fluctuations.
5. Investing in peer-to-peer loans is associated with low fees
A great advantage of investing in peer-to-peer loans is that they are associated with low fees. There are now a large number of different providers, so that the cheapest and best provider can be selected by means of an independent comparison. Those who invest in the stock market often have to pay high fees or issue surcharges. However, this is not the case when investing in peer-to-peer loans. The high returns that can be generated are therefore not diminished by high costs.
Conclusion on investing in peer-to-peer loans
Investing in peer-to-peer loans is nowadays a modern, flexible and cost-effective alternative to traditional investment opportunities. In times of low interest rates it is hardly possible to generate high returns. With peer-to-peer loans, however, this is possible without any problems.
Of course, there are risks associated with this form of investment. However, these risks can be avoided or minimised with various measures. Peer-to-peer loans therefore belong in every portfolio and represent a good opportunity to generate passive income.