An interesting investment can be investing in P2P loans. Peer to peer simply means from person to person. So these are loans from private person to private person. So if you want to earn or borrow some money, the P2P system may be a viable option.
Why should you lend money to strangers?
One or the other will ask the question of P2P loans, if this is not too dangerous a financial investment. Finally I lend my money to a stranger. In fact, P2P investments can be risky. But only a non-calculated risk is a real danger. In order to successfully lend to private individuals, diversification is necessary and possible. This works in a similar way to stock investment. You invest a lot of money in order to be able to compensate 1-2 losses with the profits of the other shares or, in this case, loans.
How does this work?
Let’s say you have 2000 euros available to invest in P2P loans. This money can be divided into 100 mini investments of 20 euros each. You don’t finance a whole loan alone, but 100 different loans. Now, let’s pretend 5 loans are defaulted and other 95 is positive. These 5 defaulted loans can also be offered for sale at a discount price on the so-called secondary market. There may be a buyer for the defaulted loans. It is therefore a credit market in the credit market. There you can also act as a buyer yourself. I would only recommend this to advanced users.
Which functions do the most important providers have?
Some lenders offer fail over, meaning you get the money back into unused credits. Many providers give you the opportunity to specify in which loans you are willing to invest, for example, only customers with a high credit rating or only for a maximum of 36 months and so on. Also, automation can be set so that profits earned or repaid can be reinvested immediately. Further options are, for example, the desired return (attention: the higher, the riskier) or the maximum amount of a loan participation. Once you confirm your investor settings and your willingness to invest in P2P loans, Investments are made automatically. So you have almost no work in building a passive income. The downside is that you do not know who you lend money to and what that person wants to use that money for. There are very few providers who offer this feature. Then again the disadvantage would be that you have much more work, because you have to look at each potential customer first.
Who are the most famous providers of P2P loans?
There are now around 70 European providers on the P2P market. The most famous UK representative is Zopa . Other interesting providers are Bondora and Estateguru. If you are interested in this form of investment, then it would be important to simply look at the providers. Look at advantages and disadvantages of the various platforms and then decide on the basis of your preferences. Investments with several providers are of course possible. To summarize, although investing in P2P loans is somewhat risky, skillful diversification gives you double-digit return opportunities.
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