Investing in Peer to Peer Lending

 

 

Peer to peer lending is considered by some to be a very risky type of investment. Viewing the different peer to peer lending websites like Lending Club, you can see various investment risks and if you are one of the people who do not like the idea of losing your money, then it would be best that you would not invest this way. Lending Club is a publicly traded company and this is written in their prospectus filed with the SEC. Losing money is actually the worst case scenario for investors and it rarely happens. Most of the time, people make money from peer to peer lending. There are many people investing this way so it must be working for most of them. 

 

The risks are primarily based on the nature of the loans issued by Lending Club. These loans are not secured. That means that there will be no collateral that would back it up in the event that the borrower does not repay the loan. There's only the word of 'promise' that the borrower will give you. However, this is not just the only type of loan that is not secured nowadays. Each store credit and debit card is considered as an unsecured loan. These lines or loans of credit carry a huge interest rate because they are not secured. This is the same concept also that goes with the peer to peer lending.

 

But, what is the main difference between lending club investing and credit card debt? The difference is mainly on the period of paying the loan. Usually, loans are paid within 3 to 5 years. The borrower would pay the installments, not the actual minimums. The objective here is to be able to complete the payments within the shorter term. Paying the minimum on a credit card will take over 10 years to pay off the balance.

 

So, how risky is it? They actually have the same amount of risk with the credit cards and other kinds of unsecured loans. The risk is all about the failure of the borrower to pay, but a lot of steps have already been undertaken with this type of lending so that the risk would be reduced. Get into some more facts about loans and personal finance at https://www.huffingtonpost.com/topic/personal-finance.

 

The borrowers' qualifications and credit worthiness must be clearly established. Lending Club will review the borrowers credit use, history, credit scores, and other things such as employment length, bankruptcies and late payments. Whenever the person won't be able to meet all the standards of the loan, then they will rejected. These are usually posted for all investors for further review. This gives reassurance to the institution that it has accomplished its job. Secondly, the important information from the credit check will be posted upon the time of requesting the loan. The peer to peer lending investing lenders are permitted to view this information so that they can make their own decisions as to whether it is worth to invest or not.

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While this is not an exhaustive assessment of peer to peer lending, I have tried to cover the basics and give you an understanding of the topic. In addition, I hope the examples will help guide you in your own investments. There are many things to consider beyond what is presented here, but this is a good start. Look for the next installment in this series to further enhance your knowledage and understand of the P2P loan industry.