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An alternative way to invest is to use a P2P investment account. You can earn up to 20% return on your money, and its really simple to set up!
What is P2P investing you ask?
P2P (means peer to peer, i.e. from me to you) lending allows one person to borrow money from another person without using a bank or other financial institution. The result? They receive a better loan interest rates for the borrower, and you receive a higher return investment interest rate return, compared to term deposits or bank interest, for the investor.
How does P2P lending work?
You (the investor) can search through other peoples loan applications, and decide if you would like to invest. Generally , you would invest small amounts of money across multiple loans for diversification. Similarly, one loan application, will have multiple investors. P2P investing can be enticing due to a high rate of return (can be 15%+), and regular stream of income (interest and principle paid back each month). However, like all good things, there are disadvantages and risks to be aware of as well.
The Advantages of P2P Lending
P2P lending has many advantages, including:
Higher Interest Rate – with P2P lending, you are either able to set the interest rate (i.e., RateSetter), or are able to choose a return based on the risk you choose to take (i.e., Mintos)
Compounding Interest – most P2P platforms have an automated way for you to reinvest you money. Generally you can select the interest rate, timeframe and other types of loan that can be automatically selected for you (however, this can also be a disadvantage).
Steady Stream of Income – P2P loans are generally paid back to the investors account on a monthly basis, including a percentage of the interest, and principle invested. This type of return provides money to be constantly entering your account each day or month (depending on your investments).
Diversification – you can select the amount of money you would like to. With platforms such as Mintos, you are able to put a small amount of money into multiple loans, spreading any risk of default.
Ease of Use – Creating an account and transferring money into the account is a very simple, streamlined process. Investing in loans is also as easy as clicking a button or 2.
No or Low Fees – Generally there isn’t fees associated with investing in loans.
See my Mintos account returns for a diversification and steady stream of income examples.
The Disadvantages of P2P Lending
P2P lending also has some disadvantages, including:
Risk of Default – Unlike banks which are classed as relatively safe, P2P investing has quite a bit higher risk. However, the risk of default has been minimised in accounts such as Mintos (who have options for a buyback guarantee if no funds have been received in 60 days), and RateSetter (who havea provision account in case of defaults.
History of Loan Applicant – In platforms such as Mintos, you are able to choose the loans that you would like to invest in, but the information about the applicant can vary greatly. Sometimes, with personal loans for example, all you may see is the sex of the person, and their age. Business loans generally show more information, but it depends on the loan originator. In platforms such as RateSetter, your money will get automatically invested into a chosen loan applicants account (you don’t get to choose this). This is why it is important to choose wisely which investing platform you go with, and ready how people are vetted for loans.
You need money? I can lend you the money!