Three Key Advantages of Peer-to-Peer Lending as an Investment

Even in the best economic times, getting a good return on your savings is necessary to beat inflation and retain the value of your money over time. Traditionally, investing in the stock market has been one of the best ways to earn an excellent rate of return. Many people have used their hard-earned funds to buy positions in individual companies. Others have bought shares of mutual funds in order to spread the risk among several investments.

Investing in the stock market does have its advantages, but it is not necessarily the best way for every person to grow his or her savings over time. Returns are hardly guaranteed, and it can take a lot of knowledge to beat the market’s average annual return, which is about ten percent over several decades. Yet there is a way to increase your odds of getting even better returns when you invest your money. You can invest your funds via peer-to-peer lending and get a handsome return on your investment.

Peer-to-peer lending is a relatively new way of investing that has developed with the spread of Internet access. In peer-to-peer lending, you lend money directly to other people, often through a third party such as an Internet lending company. In many cases, you are free to set the terms and interest rate yourself. At other times, you agree to terms that the borrower suggests. You need not fund the entire amount that the borrower is seeking, for third party sites often allow you to pool your money with others in the same loan, which spreads the risk.

In any case, there are many advantages to peer-to-peer lending as an investment. First, the amount of research it takes to be a successful peer-to-peer lender is much less than what is required to be a great success in the stock market. To judge accurately whether a company is a good investment or not, you have to understand balance sheets, know the position of the company in relation to its competitors and much more. Becoming adept at this can take years, if not decades. On the other hand, much less research is required to earn a good return through peer-to-peer investing. When you make such loans through a third party site, you usually have access to data such as the borrower’s credit history, income and so on. All of these facts are easy even for those with little background in finance to understand. You can make a decision relatively quickly as to whether you should agree to an individual’s loan terms or not, making it easier to choose which loans deserve your investment than it is to pick the right stocks.

The second advantage of peer-to-peer lending is the potential for a fabulous return. Many borrowers are willing to pay more than a ten percent rate of interest because they have been unable to obtain a loan elsewhere. It is impossible to get anywhere near this return in a traditional CD or savings account, and it is hard even to get this rate when you invest in the stock market. Peer-to-peer loans can be riskier than other investments, but you can offset this risk and maintain a great return by spreading the money you loan across several loans and borrowers. Thus, peer-to-peer lending becomes a safer way to enjoy a greater return.

A third advantage of peer-to-peer lending is that you can start investing with only a small amount of money. Many brokerages and banks require a minimum amount before you can open an account. This minimum can be upwards of $500 or more. But with peer-to-peer lending, you can get a piece of the action with as little as $50 or less when you work through a third party company that bundles many investments into larger loans. You need not wait until you have a lot of cash to earn a return on your money when you choose peer-to-peer lending.

Peer-to-peer lending is a relatively new way of investing, but it is one that has great potential to give you the best returns on your money. Consider these advantages carefully, and you will no doubt see how wise the right peer-to-peer loan investment can be for your portfolio.

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