Four Myths Surrounding Peer to Peer Lending That Shouldn’t Bother You
Peer to peer lending is a newer way of investing money and seeking funds, so it’s a practice that is naturally surrounded with several misunderstandings. Unfortunately, many of them prevent people from taking part. Make sure you don’t let the following four myths prevent you from taking advantage.
- Peer to Peer Lending Requires Plenty of Capital
People assume that investing in peer to peer projects requires a large initial investment. It is true that many first-time investors stake a sizable amount of money, but several platforms allow users to create an account and start investing with only a few hundred pounds.
- Peer to Peer Lending is Unregulated
Peer to peer lending often seems risky since you’re cutting out the middleman during the lending process. However, the United Kingdom’s peer to peer lending industry is fully regulated by the FCA (Financial Conduct Authority). Lenders must possess a minimum amount of operating capital, meet money requirements, and act with integrity while treating customers and clients fairly. In fact, the United Kingdom was the first country in the world to provide complete regulation for peer to peer lending.
- Peer to Peer Lending is Just Crowdfunding
Peer to peer lending shares a few similarities with crowdfunding. However, crowdfunding aims more to provide funds for a project that people are passionate about, with the incentives provided held as more of a secondary concern. With peer to peer lending, lenders receive fixed repayment rates – the focus is placed on investment and growth. Fittingly, borrowers must provide credit scores and personal information.
- Peer to Peer Lending is Too Good to be True
Peer to peer lending typically offers interest rates ranging between 4% and 15%. Such high rates of return often make potential investors bulk; it just seems as if such terms would come with unacceptable levels of risk. However, those increased profits are yielded due to the elimination of the middleman. Default rates for peer to peer are actually quite low.
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