Top 5 Reasons to Invest With Peer to Peer Lending

2. Begin investing with just $25

If you have at least $25 to invest, then you can start investing in peer to peer lending. This is unlike many banks and mutual funds, where you have to invest hundreds or thousands of dollars to get started. With p2p lending, you can invest in lower increments of money, getting you an investment account a lot sooner.

3. CD's remain to pay less than 3%

Even though CD's are protected and insured by the FDIC, you are likely to lose money due to inflation if you were to get a five year CD right now. Currently, according to bankrate.com, the maximum return is 2.61%, with 2% for a three year CD. If you are trying to grow a nest egg, investing through a CD will not be very effective.

4. You get true diversification in your investment portfolio

It has been said by financial planners that diversification is an essential aspect to investing. P2P lending helps provide just that. You are investing in a complete different asset class, consumer credit, as asset class that is not available in most traditional investments. In 2008, almost every asset class lost value, making investing traditionally a bigger risk. With peer to peer lending you are adding more diversification to your investment portfolio.

5. You don't have to deal with Wall Street or banks

We all know how the big banks and financial institutions on Wall Street were the main cause of the financial crisis that everyone has been affected by. By using peer to peer lending, you can completely avoid using these institutions and get a better return on your money. Your money is in better hands with p2p lending, rather than in the hands of institutions that made poor decisions and showed a high level of greed with other's hard earned money. With p2p lending you are in control.

Martha wanted to buy a new car when her old Rover gave way and required about ??2,500 to buy the one she liked. Her bank offered her a loan at a shocking 29% for ??2,500 for a loan term of 4 years. This was way beyond her means. As she enquired among her friends for a more feasible loan rate, she came across social lending and decided to give it a try. Within the next three weeks she had got the much wanted loan at 15% which she could easily payback in the next five years. How does P2P lending manage loans at reasonable rates and that too for borrowers with not so perfect credit rating? It does so by cutting out middlemen with their huge overheads and big margins.

How does peer to peer lending work?

Most social lending marketplaces function on the eBay model where borrowers and lenders work out a loan without recourse to a third party. The borrowers' loan requests are listed on the online platform, indicating the required amount, interest rate and the duration of the loans. Lenders place bids on the loan listings which suit their investment criteria after sifting through hundreds of borrowing requests. The borrowers' online profiles can provide their financial strengths as well as responsibilities including their monthly income and expenses. Most sites get the borrowers' creditworthiness assessed through their credit scores as well as various other parameters like calculating their DTI ratio, their stability and affordability scores etc.