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Jan 31, 2015
Earning money off peer-to-peer lending
Financial security is not just a buzzword, it’s a reality which beckons us even if we look at it with interest or not. Nowadays, bigger financial concerns for every individual consist of things like buying a house or having a retirement plan which they could thrive off and make way for an easier living pattern.
Peer-to-peer (P2P) has taken the world by the storm. P2P came on to the scene as a disruptor and has cemented its place as a viable business right alongside high street banks which had been operating unchallenged for centuries. It started from U.K and has slowly gained acceptance all over the world. Recently, the idea of P2P was also picked by India, the world’s largest democracy and one of the fastest growing markets. This shows its potential.
What is P2P and what can it do for you?
P2P can help you have more money in two ways. Firstly it has the potential to get you loans with a cheaper interest rate, and a penny saved is a penny earned. Secondly, if you have idle money, it can help you earn interest on it, an interest that will be much higher than what a bank would give you.
Banks have always acted as the middle –man. They take money from people who have extra and then loan that money out to people who need loans for interest. The bank earns by keeping a hefty cut of that interest and giving a bit of it to the depositors. The idea behind P2P was to cut the middle man. P2P platforms started with Zopa, an online website where lenders and borrowers came together. The P2P model allowed lenders to directly lend to people who needed loans. The platforms usually take a small fee from the borrowers to list their loans. Once listed, the lenders choose which loans to invest in. This cuts the hefty fees of the banks, thus benefiting both the lender and the borrower.
Why should you use peer-to-peer lending?
If you are a lender, then there are good chances you will lose out by putting money in a bank. Interest rates are low worldwide, and there are good chances you will get hardly 3% return, even if you deposit your money for one year. Usually, there is a minimum investment of USD 1,000 and that too if you are lucky. On the other hand, in P2P, minimum payments are often as low as USD 100. Plus most P2P platforms are flexible, allowing you to redeem your investment anytime by simply selling off your loans on their active marketplace. There are no penalties in most platforms for early withdrawals. Thus if you have modest savings and want to beat inflation P2P is the place for you. P2P is a very good idea if you are in college and want to ensure your savings during college are not eroded by inflation.
On the other hand, if you want to borrow, then again P2P is a very good bet. Unlike banks, P2P platforms have a very fast application process with replies coming in within hours instead of the days or weeks a traditional bank takes. Also, rates are competitive compared to a bank. And the best part is that you can apply for a quote from the comfort of your desk or sofa, or wherever you use your laptop or phone from. Plus there are no hidden charges.
All in all, P2P is here to stay and you should definitely get a piece of this cake.