The Investment Risk of Peer to Peer Lending

The Investment Risk of Peer to Peer Lending

Risky DollarEvery business minded person always ends up being an aggressive entrepreneur:  A Risk taker, in other words. These individuals have giant hearts of steel that aren’t afraid to take a fall. However, there are certain times a risk taker should play it safe.

When is that perfect time? The time has come after you make tons of money through investments, business, and other forms of risk taking. After that occurs, you should definitely think about playing it safe. A lot of entrepreneurs invest into IRA’s, CD’s, index funds, and bonds. This strategy definitely won’t make you a lot of money with those investments. However, at least you won’t have the chance to suffer huge losses with the money that took so much risk to earn.

Entrepreneurs all over the world are always looking for ways to earn big with less risk. One way this is accomplished is through P2P lending. The online world has made peer to peer lending a great way to give out unsecured personal loans to ambitious individuals who need your help.

These people are in need of money for a number of different reasons and they can go visit websites such as Prosper and Lending club. Theses certain types of P2P lending companies will help these desperate borrowers find potential investors, and vice versa. Borrowers complete an online forum that will determine their credit, which will also produce the interest rate of their potential loan.

This might make you a little worried, but don’t run away yet! The good thing about P2P lending is that there is more than one investor taking the risk. Therefore, the process helps spread the risk around to multiple investors. For example, if someone wants to borrow a 1,000 dollar loan, then 5 different investors (or maybe even more) will likely provide the borrower with 200 dollars each, totaling to 1,000 dollars. Not only that, there are other ways to lower the risk even more as a peer to peer lender. You can always focus on individuals with good credit, making it a lower risk investment. However, don’t forget that borrowers with bad credit can possibly give you a greater return on investment.

Speaking of return on investment, it all simply depends on the amount of risk you want to take. By doing research on I found the return on in investment to be anywhere from 5 percent all the way to a smashing 14 percent yield. The downside is that a bad economy can really hurt your potential returns. And in this day and age that is definitely something to worry about. The higher the unemployment rate, the greater chance of a potential loss can occur. Loan defaults can happen when people lose their job.

To sum things up, peer to peer lending is a great option for an investment vehicle. The glow of the return on investment is definitely attractive to any type of investor. It gives investors more diversification and more options for their money. P2P is also great for borrowers who are to a great extent in need of money and want a lower interest rate than the average bank loan.