In previous Crowdfunding Tips on Peer-to-Peer lending we have focused on the advantages for the borrower. These are significant. Peer-to-peer lenders do screen their borrowing clients, but they can afford to allow much smaller loans than traditional banks thanks to their technological processing methods. Furthermore, they have significantly lower interest rates than payday loan and title loan companies with much lower risk to the borrower. With that said, failing to make good on your loans, as a borrower, will certainly make it more difficult the next time you need a credit boost.
Peer-to-peer lending is set up so that many lenders can extend credit to one borrower. For example, Prosper – the featured lender on Best Crowdfunding Websites – requires that a lender should put up a minimum of $25.00 toward each loan selected. However, a lender could invest $25.00 each in several loans, thereby diversifying his or her portfolio as a lender. That means that a single lender could invest $200 and spread it out over eight different lenders. In this way, should one of the borrowers default on his or her loan, the lender still have seven other investment loans from which to earn interest.
Interest on peer-to-peer loans has significantly higher earnings than other investment options in 2015. According to Edward Jones, U.S. Treasury Bonds have a return of about 66 percent, and Bankrate lists CDs at 1.25 percent. Both those investment options are relatively risk-free; but their return rate is very low. Although Prosper and similar services do take measures to encourage repayment of loans, there is a significantly less secure for investors. An article from CNBC recommends that investors consider peer-to-peer lending as a part of their high-risk portfolio. With that said, returns on peer-to-peer lending has been had at least a 5 percent yield for most of 2015.
Another consideration is that not all states in the U.S. allow peer-to-peer lending within their borders. Many legislators and other officials regard peer-to-peer lending with a certain degree of alarm. Whether it stems from fear that the market will fall apart or whether they fear competition with more established lending institutions is hard to say. For whatever reason, individuals in those states who wish to participate in peer-to-peer lending will probably have to act through an intermediary, if they are able to do it at all.
For those who live in areas that allow participation, the process is relatively simple. First, fill out an application and set up an account. Next, log into the account and browse the various borrowers who are pitching their need. Select one or more that appeal to you, deposit your support pledge, and wait for the results. Borrowers are required to make regular payments, just as they would on any loan.
The loans go to all sorts of borrowers. They might include excess school expenses, medical bills, and consolidation of older loans, buying a car and much, much more. Often these loans are used to start up new businesses all over the world. These small businesses can increase family security, and offer new jobs. That’s a win-win for world economy and a way to level the playing field between the haves and the have-nots in our modern world. Dare we say that it might even be a pathway toward world peace? That might be too grandiose an ambition, but certainly these small loans are a blessing for families that are creating cottage industries to improve their lot in life.
As you can see, Peer-to-Peer Lending is much more than just another way to invest money or another way to buy a used car. It is an investment opportunity that supports communities, both those who need a loan as a bit of a boost up and those who need a way to grow their investment portfolio quickly enough that they will be able to retire before they are too old to enjoy it. Perhaps peer-to-peer lending hasn’t come to your area yet. Now might be a good time to look into it and to discuss options with your political party and see if there is a possibility of opening that door. While it is true that there are some risks involved, there is potential for great good. It is worth looking into – after all, wouldn’t you like to be part of a financial movement that has something good for everyone, everywhere? Just imagine, gardens with heirloom seeds, a family given a car to get them to work and to school, school books when they are too dear to be paid completely out of student loans and grants, and so much more besides. New goods, new ideas, new businesses and new jobs – applications that can make the world better place with more opportunity. Now that’s progress.