Why peer to peer lending should be in your investment portfolio

The case of peer to peer lending is drastically different from the operations of traditional funding institutions such as banks for both the borrowers and lenders. As the lending process is between two individuals, there is more scope for personal negotiations as well as ease of establishing a contract.

When you avail a loan from a Bank or a financial services company, you are always at a risk of heavy interest rates. In some cases, if you are unable to repay the loan on time, there are huge fines being levied as well.

P2P lending ideally involves a borrower and lender and is accomplished via online platforms or at a personal level amongst friends, family members and colleagues. Also known as social lending, this method is very popular across the world.

Some benefits of peer to peer lending include:

1. Easier access to lenders and easy approval: When you try to avail a loan from an individual or a group of individuals, the interaction is direct and provides easy access to information and money exchange. The procedure for getting the money you need is simpler and the approval is from a personal standpoint, thereby making it easier for both parties.

2. Less Fees: As the lending in peer to peer situation is amongst friends, colleagues or family members, the interest rates and duration can be easily negotiated for returning the money.

3. Saving time: While you can not just ask for more time to return the money you have taken from your friend or peer, you also save a lot of time as there are no stringent procedures for approval.

4. Mutual benefit: Both lender and borrower benefit in the case of P2P lending because both can decide on an acceptable rate of interest and time for returning as well as work it out personally in case of negotiations et al.

5. More choice for borrower and lender: If you are planning to borrow from your peers, you also have the discretion to decide whom to borrow from, as you would know the person well enough. At the same time, a borrower can also choose to lend the money to their peers who have a good credit report. This way, both parties benefit.

6. Great way to diversify your investment portfolio: Most platforms allow investments of anywhere between $ 1000 to $ 5000, which means as a lender you can invest in different businesses and spread your risks. By doing so, you can earn good profits and experience a good return on your investments foregoing the commissions charged by the websites that enable P2P lending.

Overall, P2P lending is not just an easy and convenient way of borrowing and lending money but is also emerging as an effective method of earning a steady income.