Peer to Peer investing is an excellent alternative investment. It can be compared to some other traditional investments to see whether it makes sense to invest in peer to peer platforms.
Peer to Peer platforms solve two problems:
- Private lenders/investors need returns because savings rates are low
- Borrowers need money to support and grow businesses or to fund deals
P2P Lending VS Bank Savings
Bank savings rates are still abysmally low. If you have large amounts of sitting in bank savings accounts for a long time, you will lose money to inflation as the cost of living and goods increase. If you need your funds in the short term, holding the money in a savings account can make sense, but if you don’t need the money, then you would be better off taking the necessary investment risks to grow your money using compounding interest.
P2P Lending VS Company Bonds
Bonds are usually unsecured and when you invest in a company bond or mini-bond, you are investing money directly into the company which is risky. If the company goes out of business (which does happen), bond investors are usually treated as unsecured creditors and are at risk of losing their capital. To top it off, bond rates aren’t even that attractive with most bond offerings paying between 3.5-7%.
If you are going to take risks, it makes more sense to invest through reputable FCA regulated peer to peer lending companies offering secured loans that pay equal or more interest than private bonds pay.
Every single investment method has its pros and cons, including property (high cost of entry, increased stamp duty taxes, landlord headaches), stocks, shares and funds (if the market crashes, your capital and emotions could spiral downwards), and bonds (returns are low).
Peer to peer lending is not without its issues. Some companies are complicated to understand and have a higher investment learning curve. If you invest through the wrong companies, don’t diversify correctly, only choose high risk/reward loans chasing returns or select the wrong loans, your returns could be in the red. But if diversify correctly by spreading your money across several companies and loans, peer to peer lending can be a very positive investment vehicle.