Why include P2P lending to your investment portfolio?

Why include P2P lending to your investment portfolio?
Let’s introduce you to P2P lending, how crowdlending works and help you decide if this asset class makes sense for your investment portfolio today.

P2P Industry Introduction: 1 out of 7

Do you want to be the boss of your own financial situation and make money by being an investor? The goal of this series of articles is to introduce you to P2P lending & crowdinvesting and to help you decide if this asset class makes sense for your investment portfolio!

Planning the Future

When you plan your financial future, you must consider different investment products that can help you achieve your return goals. There are various financial products available to private investors, however, if you do not have specialized knowledge, it can be tricky to start and find the best product that will fit your specific goals.

Are you aware of the world of peer-to-peer lending platforms? P2P investing? Crowdlending? CrowdInvesting? Let’s try to explain what the most important features of the industry are and what you must know and look for when choosing a platform and why.

It’s never to much to remember… think and research before investing!

Why Crowdlending Investment @ Savings4Freedom
What is Crowdlending? Why include it in your investment portfolio?

What is P2P Lending?

Also known as crowdlending, peer-to-peer (P2P) lending allows individuals, small businesses and entrepreneurs to secure funding. Fintechs are in the cutting edge of the technological development that allows to appropriately manage the money loaned by thousands of individuals with savings who are looking to invest their funds and see a return.

New fintech platforms allow to remove traditional banking and get financial services without their involvement, opening loan investment to individuals at a lower investment amount need.

How P2P lending works @ Savings4Freedom
How crowdlending works

The P2P platforms are an intermediary, just like the marketplace that matches borrowers with lenders. The non-banking financial corporations issue loans to businesses or individuals (loan originators). On the other hand, there are individuals that want to earn a return higher than offered by bank deposits and less volatile than offered in equity markets. The job of P2P platforms is to match these two parties.

As the loans are facilitated by P2P platforms and not traditional banks, they have no minimum loan amount and can offer better interest rates for both parties. They are also quicker and more efficient than bank loans, as the automatic processors eliminate the need for a middle-man, and lenders can customize how long they want to lend for.

Such advantages are driving the recent growth of P2P lending, and its success is owed in part to the changing attitudes towards traditional lending and saving through banks that Fintechs made possible. As a more “for the people” option, P2P lending puts savers back in control and provides options for savers to endure poor returns from a low-interest-rate environment.

P2P platforms fintech
P2P Platforms are in the cutting edge of fintech

All P2P Lending Platforms are Different

Some P2P platforms issue loans directly, others don’t issue any loans, and do not hold any money. They simply bring together and transfer funds from investors to borrowers.

A critical aspect for the success of any P2P platform is the added value offered to investors in a highly competitive landscape, such as offering loans exclusively from great loan originators (credit issuing companies) with an impeccable reputation, known for prudent procedures and conservative lending track record.

P2P platforms can also differentiate among competitors by providing additional due diligence, ensuring that only validated loans with low default chance are presented on their platforms, or by following a transparent financial disclosure of the entire business infrastructure to investors. The reality is that the entire industry is based on trust and peer reputation. A bad performance or criminal activity by a single P2P platform can jeopardize the good work done by the entire industry.

This makes the selection of P2P platforms the most important aspect of this particular investment asset. It also makes P2P investing a risky choice for people planning their financial future. P2P investing shouldn’t represent more than 10% of investment assets, but this decision is exclusive to each individual choice.

Learn about the P2P Lending Market (P2P Industry Introduction: 2 out of 7)


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