P2P Beginners: Why Invest in Peer to Peer Lending?
This is the second in our mini-guide series for P2P beginners. The first mini-guide discussed “what is peer to peer lending?” this week we address the questions of why people invest and what are the benefits of peer to peer lending? Get in touch if you have any questions!
What are the benefits of peer to peer lending?
Peer to peer lending (P2P) offers investors a range of benefits. The major benefit is the higher interest rates on offer. Many people use P2P as an alternative to traditional investments, like stocks and shares. While others may use it as an alternative home for their cash savings which earn very little sitting in their bank account. *
Here are some primary benefits associated with peer to peer lending.
- Better returns on your money
You can achieve returns in the region 5%+ per year by lending your money across a peer to peer lending platform. More can be earned if you’re willing to invest in higher risk loans.
2. Diversification to reduce risk
Many investors use P2P investments to diversify their overall portfolio. They can then diversify further within P2P, spreading money across multiple borrowers. This reduces risk while maintaining returns.
3. Stable investments with little volatility
P2P investments don’t sit on the stock exchange, so the returns aren’t greatly affected by fluctuations in the market, therefore returns are considered very stable.
4. An alternative to banks
P2P investing is not a substitute to holding all your cash in the bank, but it is an alternative which people have been using to generate better returns on their savings.
5. Support businesses and people
P2P lending allows you to invest in businesses and people (consumers). Whether lending to someone who is funding a wedding or a business expanding, your investment supports societies across the UK.
6. Control your investments
You decide which platforms to lend across and, in many cases, you can even select the individual loans you want to invest in. This depends on the platform.
Other benefits include the Innovative Finance ISA which shelters returns from tax, the ability to draw income or grow capital over the long-term, transparency over loan book (depends if platform offers this), ease of use and so on.
*Important: P2P lending is not a savings product, it is an investment which is not covered by the Financial Services Compensation Scheme (FSCS).
We polled our user-base of P2P investors. Here are the results when asked to select their top three benefits of investing in P2P.
Thanks for reading. Coming soon! ‘P2P Beginners: What are the Risks?’ mini-guide. Feel free to get in touch if you have any questions via phone (0131 510 7376), our Live Chat or by emailing [email protected]