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08/07/2022

Is P2P Lending the best way to earn passive income?

Table of content

Introduction

Is P2P lending the best way to earn?

Why Peer to Peer Lending is the Best Way to Earn Money?

Interest rates

Ease of Operation

Secondary Market

Variety

Diversification

How to start Passive income with Peer to Peer lending?

Finally

Introduction

Peer-to-Peer lending consists of 4 main subjects: Investors, P2P platform, Loan originators and borrowers. Each of them has a crutial rule.

P2P lending is among the most popular investing options in Europe. The P2P lending market attracts thousands of individuals each year, some of whom are experienced investors and others who are absolutely new to the concept.

Is peer-to-peer lending the ideal option for you to earn money, whether you're making your first P2P investment or growing your current investment?

Is P2P lending the best way to earn?

P2P lending is widely regarded as the most user-friendly and productive methods that investors may employ to generate passive income.

P2P sites can provide investors with interest rates that are more appealing than those offered by banks, which is another reason why some investors choose them.

Borrowers will typically be expected to make payments on the loan, very similar to the terms of a conventional loan arrangement. This provides investors with the opportunity to relax while watching their profits arrive at consistent intervals.

Why Peer to Peer Lending is the Best Way to Earn Money?

Interest rates

The interest rates that are offered are the primary selling point for many peer-to-peer lending platforms. For example, interest rates offered by P2P lending platform Income Marketplace goes up to 12%.  The low interest rates that are offered with traditional savings are pushing many individuals to investigate other methods to make the most of the money, including peer-to-peer (P2P) investment. This is despite the fact that the two products cannot be compared to one another.

Ease of Operation

Compared to other sorts of investments, such as equities and shares, many individuals who invest find that Peer-to-Peer platforms are comparatively simple to use. You won't need any prior experience in finance to get started with them because they are almost often conducted entirely online and use only a minimal amount of industry lingo. Peer to peer also has a tendency to provide modest minimum investment levels, which might provide an excellent chance to "dip the toe in the water" if you are still relatively new to the world of investing. Peer to peer generally tends to have less restrictions on who can invest.

Secondary Market

Investors have the opportunity to sell portions of their loans to other investors through secondary markets, despite the fact that it is never safe to anticipate that they will have an early exit from their investment. This gives you access to liquidity in the event that the situations change and you will need to access the money earlier than you had expected.

Variety

Because of the flexibility that comes with peer-to-peer (P2P) lending, investors have a lot of options at their disposal when it comes to deciding how to put their money to work. Small company finance, assisting customers in the expansion of their real estate holdings, and supporting new home developments are among the most popular applications. Platforms such as Mintos offer the most diverse loan types.

Diversification

Because you aren't investing all of your money into a single loan, the majority of peer-to-peer platforms will have at least one product which automatically diversifies (spreads) the investment over many possibilities. This product is called auto - invest. It allows to automatically invests in multiple loans by criteria chosen by an investor. Read the article Autoinvest as a passive income tool to find out more.

How to start Passive income with Peer to Peer lending?

To begin, let's discuss what we mean when we talk about lending between individuals directly (P2P). In its most basic form, peer-to-peer (P2P) lending makes it possible for borrowers to obtain financial assistance from private individuals as opposed to established financial institutions such as banks. P2P platforms, such as EstateGuru, evaluate loan applications submitted by potential borrowers, estimate the level of risk associated with the enterprise, and evaluate the applicant's credit rating before deciding whether or not to approve the loan application.

The candidates that are successful are given an interest rate that is determined by the criteria listed above as well as other considerations. In the event that the applicant decides to agree to the terms, their idea will be published on the site for people to review and, if they so want, perhaps fund. After then, it is the responsibility of the borrowers to make regular (often monthly) interest payments, and eventually, it is their responsibility to return the principal amount when the maturity date of the loan arrives. 

When it refers to Estateguru, one of the key differences is that the loans are guaranteed by a first-rank mortgage. This indicates that the borrowers must produce collateral as in the form of real estate in order to be approved for the loan. In the event that a borrower fails to make their payments as agreed, this ensures that the investors receive priority when it comes to the revenues from the sale of the property. Even if this is not the conclusion we were hoping for, and even though it only sometimes takes place, having this information is comforting all the same.

Finally

Peer-to-peer lending is a revolutionary strategy for capital-raising that enables business owners to seek funding from a community of investors. This technique for doing business is known as the P2P lending business model. The process of applying for a loan is sped up, there is less paperwork involved, interest rates are lower, there is less of a chance of getting the loan denied, the customer's experience is simpler, and there is less of a risk. P2P lending, on the other hand, has a number of potential downsides, including a lack of appropriate legal frameworks, low or no personal connections, and a high possibility of having a negative influence on credit scores. In spite of all of these obstacles, the peer-to-peer lending market is expanding at a rapid rate, particularly in Europe. To find out more about Peer to Peer Lending and passive income, read the article How Peer to Peer lending is the answer to passive income.