Anyway. It's not always easy to find out which investment opportunities are the best. Which ones fit your personality-type and financial situation the best. But it will help if you know the risks involved. Since peer-to-peer lending is relatively new in the U.S. many people are a bit gun-shy. It's like the new kid in class, he may be cool, he may be a total jerk, but everybody is waiting for someone else to go figure it out.
The Risks Involved In P2P Lending Investments & Stock Investments
Only a total noob doesn't know that market volatility is part of the game when it comes to the stock market. Novices can find it hard to know how long to stick with their investments in a healthy sector before it goes downhill. Thousands of dollars can be lost overnight, heck, we've even seen millions lost. Buying stock is a big boys (and girls) game, not much room for error. A learning experience can cost you your bank account. With peer-to-peer lending investments you are helped to mitigate the risks as much as possible. But yes, there are still risks. Companies like Prosper Marketplace service private money lending deals, these loans are neither guaranteed or FDIC insured.
Some borrowers might default on their loans, the same way as some businesses you buy stock in might fail. To help you avoid defaulted loans, P2P lending sites like Prosper and Lending Club provide you with tools and data that you would be wise to use in order to select the cream of the crop loans and make wise investment decisions. You also are able to diversify your risk-level by spreading your risk around and bid as low as 25$ per loan note.
Time & Effort Involved To Buy Stocks Online VS P2P Loans
I've done both stock investing and P2P loan investing. I can definitely say that stock buys took more of my time and effort while studying the market. Investing in the stock market requires that you have tons on top of tons of information on prospective companies, you need to sift meticulously through that info (which might require expensive stock advice mentoring), and then pull out your crystal ball and guess which direction the stock market is headed.
Peer-to-peer lending platforms make investing much easier for novice investors in my humble opinion. It's also a combination of time-saving and effective. It's as easy as performing a search on Lending Club and Prosper's sites for organized lending intel. As an investor you are free to pick through the loans that are listed by prospective borrowers and read their stories and explanations of what they need a loan for and what they'll do with it. I've found that being able to read someone's story helped me sniff out bullcrap as well as find good loans that cold numbers alone would have caused me to miss out on.
You can also filter the results by loan category, keywords or credit information. For example, if you’d like to lend your money to a Chicago firefighter with at least a B Rating loan at Prosper, they can help you find one in seconds (assuming such a borrower exists in their current pool of eligible borrowers).
Peer-to-Peer Lending: A Viable Alternative For You?
Keep in mind though, returns with U.S. P2P lending platforms are neither FDIC insured or guaranteed, but they have a track record of providing a more lender-friendly and transparent environment.
Some investors who are determined to continue buying stocks still open a peer-to-peer lending account just to find out what all the fuss is about and further diversify their investment profiles in the meanwhile.
How Peer-to-Peer Lending Works
P2P lending investors set up an account on the respective P2P website, set the parameters for the types of loans they would like to choose from, and then purchase loans in parts called "notes". Each note corresponds to a loan listing which offers the needed details, including the loan amount request, the reason for the loan, yield percentage, note rate, and borrower information. You choose your loan notes and invest. You're paid depending on the payments that your lending platform receive from the borrower.
The notes that correspond to specific borrower listings are offered by prospectus. Investors should read the complete description of the notes and risks associated with making an investment in the notes as well as other information about your P2P loans platform business model in the prospectus.
Peer-to-peer lending notes are risk bearing and speculative investments for suitable investors only.
If a borrower fails to make payments on the corresponding borrower loan related to your P2P loans note, you will not receive payments on your note (One great reason to spread your money across multiple loan notes for diversity). There is the potential that you will not receive any payments on a loan note. You should review the prospectus of your chosen P2P lending platform before investing. Not FDIC-insured. Notes may lose value.
If you plan on investing in stocks instead, be sure to get the information you need to succeed in the stock market.