Published on December 23rd, 2014 | by admin0
Peer-to-Peer Loans could be the Future of Business
Peer-to-peer lending platforms have invested over £600 million of saver money since 2005, and that’s gotten many financial analysts wondering whether the phenomenal could be the start of a new direction for financing.
So, what is it, and how does it work?
Essentially, peer-to-peer lenders cut out the middlemen at banks and building societies to allow savings to be invested directly in individuals and small businesses. The available platforms even let you to have an input on your interest rate. For example, if you wish to lend to someone with a lower credit rating, you’ll stand to make more on your investment.
Risks are mitigated by portfolio building tools which allow lenders to spread their savings over a variety of borrowers, or by a safeguard against bad debt. The amount you pay for the service itself will be based on the sourcing of borrowers, and the use of the program; you’ll know exactly where your hard earned cash is going.
Pretty good so far, but isn’t lending your money in this manner going to make returns incredibly uncertain?
Well, those interested in peer-to-peer loans aren’t necessarily high risk. Investors and borrowers aren’t using this service because they’d be declined by the bank. What’s attracting people to the system is the lower interest and higher return rates enjoyed by borrowers and savers, respectively. With the man in the middle cut out of the deal, there’s simply a lot more money to go around.
In the past, saving and borrowing money in this way just wouldn’t have been possible. But now that digital security and banking has taken such huge leaps forward, it could become the norm very quickly.
Since the reckless investing principles of the credit crunch, and subsequent scandals over banker’s bonuses, age-old financial institutions have lost the respect of the public. People are beginning to look for other ways to make a return on their savings, while individuals and new businesses are eager to borrow funds using providers offering low interest rates and flexible terms.
Peer-to-peer lending is allowing both sets of people to do just that.