The online lending world is blowing up in general, and peer to peer lending practically leads the way when it comes to innovation. It may not have taken the lead regarding volume, yet, but who knows what the future holds. What stops some people from participating and keeps investors protected is that borrowers are supposed to have 630 FICO Score to participate. That means that payday loan industry still stands alone for now.
Will peer to peer or p2p lending address high-risk lending in the future? It's possible, but for now, the risk is set to borrowers with fair credit and better. It is supposed to be an incredible investment opportunity, one site talking about investors making on average almost a return of seven percent. You know that ruling the stock market frugally is supposed to net you 8 percent as a target, so that near 7 percent average is close. Does that sound like a real rate of return to you?
Perhaps you are more interested in the borrowing side right now. It is a great platform to get a loan with good terms. Over the years, p2p lending has evolved so much. One site even allows you to sync all of your accounts across different locations. Furthermore, not all of the p2p lending sites are created equal. Some have been around longer and are more astute. Overall, you have a couple of industry leaders and some other options as well.
What makes peer to peer lending so attractive? It's attractive to investors for one because it's a different type of investment vehicle. They can provide loans as small as 25 dollars, and that is a plus. You open a brokerage account, and you start depositing money to invest in peer to peer loans. It is that simple.
Do you get to pick the loans that you want to invest in? Can you set things up to where you don't have to pick? The answer to both of those questions is yes. You will see grades assigned to borrowers, and you can even check out the average rate of return for each borrower grade. Just remember that there are grades for a reason, and people can indeed default on loans.
You don't want to default if you are a borrower, and you don't want to run into default if you are the lender. Just like when you are picking investments, you have to think about risk. You want to make sure you don't take on a whole bunch of loans that might default. You can do what you want, but a diversified portfolio would be best if you are going to mess with the high-risk borrowers. The possible rate of returns look very appealing, but you can't get there if you don't make sound financial investments. Not every potential borrower is going to net you what you expect, so be realistic about what your next steps are when investing with peer to peer lending.