If you’ve ever looked into investing before then you may have come across the term ‘peer to peer investing’ or ‘peer to peer lending’. You may have wondered what this term actually means. This article discovers what is peer to peer investing is and how you may be able to benefit from it.
What is peer to peer investing or peer to peer lending?
Peer to peer investing or lending ( also known as crowd funding) is where businesses and investors come together to help each other. A crowdfunding or peer to peer investing website acts like a kind of market place for business that need funding and investors ready to put their money into something for a profit.
Businesses looking for funding can get the help they need without applying for bank loans. Investors can lend the businesses money and in return gain a profit on on their investment. So it’s a kind of I’ll scratch your back, you scratch mine. Win win situation for both parties.
What are the benefits to peer to peer investing?
There are a few benefits to choosing Peer to peer investing for both the business and the investor. The business can receive the funding they need to get their business up and running without the input of the bank. This can mean that they are less uncertain about whether or not the bank will lend them the money they need. Therefore the start up is saving themselves time and hassle which could be put into running their new business.
The investor lending the money to the start up will also benefit from this set up. crowdfunding sites usually offer a much better interest rate than any bank can offer. Instead of placing your money into a savings account you could benefit much more by putting it on a crowdfunding site.
Similar to banks crowd funding sites also have different time length loan periods and different interest rates to each project. So if you only wanted to tie up your money for a year it would be possible. Alternatively if you were looking for a long term investment you could invest for longer periods of time.
What are the down sides to crowd funding sites and peer to peer investing?
We’ve already mentioned the benefits to investing with a crowd funding site but what about the negatives? There are a few down sides that we should also take into account.
Peer to peer lending can be risky! Generally the higher the interest rate you’ll receive back the bigger the risk you’ll have. This could ultimately mean that you could lose your investment. Of course this is not unlike other forms of investing and even stocks and shares ISA’s aren’t always for certain.
The best way to go about peer to peer investing is to only invest what you would be willing to lose. If you start with that kind of attitude you’ll never feel like you are losing. Investing is as always a gamble whether through peer to peer lending or any other form of investment.
This is a collaborative post.