By Howard Orloff,
A smart and easy way of lending in today’s times
P2P lending is the abbreviation for Peer to peer lending (ex. Prosper.com). It is also commonly called social lending. It is an approach for debt financing. In this process, individuals can lend and borrow money easily without the help of any financial institution such as banks. So basically. there is no intermediary in this type of lending. In other types of lending, banks or traditional lenders play the role of a middleman. P2P lending eliminates the intermediary from the process but it requires much more effort and time. Risk is also greater in peer to peer lending when compared to other types of lending like brick and mortar lending. Let us now look at the advantages and disadvantages of P2P lending in details.
- Advantages:The first advantage of P2P lending is easy approval. If you work with a traditional lender or a bank, chances are that you won’t get approved easily. But in case of P2P lending, there are many lenders you can work with. Even if one or two lenders have doubts about working with you, there will be several other lenders who would be ready to extend their hands. The second advantage of P2P lending is that you can save an ample amount of money. If you choose to work with a traditional lender or a bank, there would be many charges such as processing fee, application fee etc. In case of P2P lending, there won’t be any unnecessary charges.
- Disadvantages:The major disadvantage of P2P lending is a trust issue. The lender in P2P lending cannot be extremely sure that the borrower will repay his loan on time. Secondly, since there is a mammoth risk in P2P lending, there is an additional amount of interest charged here. The lenders generally do this to compensate for the huge risk that they are undertaking. You can also think of borrowing money from friends and colleagues but personal factor may play a spoilsport. Thirdly the sites that you choose for P2P lending can turn out to be involved in some big scam. So the lenders must keep a close check on the lending sites. If they tell you to pay a large amount of money in advance, chances are that the lending site is a fraud or involved in some scams. If financial returns are kept in mind, then P2P lending is a better option for borrowers but not too good for lenders.
Prosper.com provides the best facility of P2P lending. The blended rate here is 10 % and reports say that since 2009, there have been no losses for investors who have funded as many as 100 loans. 10 % is also known as a risk-free rate. It is a good proposition. Another great thing about Prosper.com is that during times of financial crisis, investors of Prosper have shown positive returns. So if you have made up your mind to try P2P lending, then the best option for you is to try the service provided by Prosper.com. The facilities provided by Prosper are discussed below.
- High yields and short duration:Prosper provides great returns and reliable terms. There is a facility called Prosper Notes which has many portfolio benefits. This is a great investment opportunity which gives suitable returns and does not lock up your money for a long time.
- Cash Flow Monthly: Once you create your account at Prosper.com, borrowers will make monthly principal payments there. The borrowers will also make payments of interest that shows up in your account. There is also a great online investing tool at Prosper.com called Quick Invest. You can reinvest your earnings there.
- Consistent Profitability: Prosper.com gives investors consistent profitability. Once they lend money to consumers, they are entitled to receive profits year after year.
- Tax Advantages:With the aid of Prosper IRA, tax advantages can be enjoyed. Your retirement savings can grow to a huge extent with the help of Prosper.com. You have to just invest your IRA (Individual Return Account) at Prosper.
- Investment Diversification:Your portfolio can be diverse with the help of consumer loans which is invulnerable to the volatility of a market.
- Investing in people: With the help of social lending, families can escape the trap of credit cards and fulfill their dream of being an entrepreneur or plan for a great wedding. Prosper.com provides personal loans to borrowers. These loans are smarter and better alternatives to the debt of credit cards which can take many years to pay off.
Peer to peer lenders also provide many flexible loan terms. There are many choices of repayment and almost no repayment charges in advance. P2P lending or social lending is growing extremely popular these days. Reports tell that the latest figures of P2P lending are quite impressive since the last few years. The websites involved in P2P lending have arranged loans of over 600 million dollars.