Peer-to-peer lending is one of the latest financial solutions to hit the market today. It involves creating the ideal lending and borrowing situation between two individuals without involving the banks or the conventional financial institution. This is why it is referred to as peer-to-peer lending. The investor and borrower are usually two individuals looking to get ahead in their financial journey.
The websites that run peer-to-peer lending services, like Lending Works, simply carry out the role of a matchmaker, helping the investor find the ideal candidate for lending. There are no intermediaries in these transactions hence lower loan service rates for borrowers and better headline rates for their savings. The investor is simply the individual who is willing to put away money for a given period in order to receive returns through the interest paid by the borrower.
Although it is referred to as saving, peer-to-peer lending seems more like an investment to the lender. This is because the borrower creates their own custom loan application details and the investor picks a borrower who matches their ideal lending requirements. There is no savings guarantee.
There are many unknowns associated with peer-to-peer lending. It is advisable to consider the various risk mitigation methods usually advised by these websites. One of the ways of minimizing risk is by spreading your cash among different borrowers as an investor in order to reduce the impact of bad debt. There are also sites that will use a third party to recover bad debts for investors through the service fee deducted by the site.
One of the best risk mitigation ways, and probably also an advantage, in peer-to-peer lending is that investors get to choose the borrower who has passed various identity verification criteria. A good peer-to-peer lending website will ensure to collect enough relevant information about the borrower in order to make it easy for investors to recover their loans in case of defaulted payments. You get to choose the ideal candidate for your money.
Traditional lending markets have tightened due to tough economic times making it difficult for individuals to access loans quickly and conveniently. Peer-to-peer lending thrives by making money available to those who need it while boasting of up to 10% returns to lenders.