Ditch Your Savings Account for P2P Investing and a Good ROI
Peer-to-peer, or P2P, small business loans are lending options for business owners who don’t feel a large financial institution is the right fit. These loans may offer some benefits to the borrowers, like a lower interest rate or less stringent requirements, but it’s the investors who win big time.
This unique investment allows peers to lend to peers. Everyday people can invest in these loans and get a good return on their investment because they can earn more than they might in a traditional savings account.
Your High-Interest Savings Option
With large banks offering interest rates as low as 0.01% annual percentage yield on their savings accounts, investors are looking for better ways to save their money and make it grow. Peer-to-peer loans are a unique option, allowing individuals to fund small business loans with their savings and earn higher interest in return.
Just how much does a P2P small business loan earn investors? Rates vary, but a 10-year look at one major P2P lender by The Guardian reported that the average return over three years was 4.4%.
The Risks of P2P Investing
Like many investments, there are risks associated with using a peer-to-peer loan to save for the future. The biggest risk is the chance that the borrower defaults on their loan, which results in the lender losing their money.
In the case of a loan default, the investor may also be expected to cover the cost of collecting what is owed. Many facilitating organizations include fees that are charged to the investor when the borrower fails to repay loans.
Getting Started With P2P Small Business Investing
There are a variety of organizations giving investors the chance to participate in P2P small business loans. Some of the most popular options include Lending Club and Prosper. In many cases, organizations facilitating P2P lending require accreditation or that investors qualify based on their annual income and net worth.
Investments are paid back as each loan payment is made, so it’s important to continually reinvest money into new loans to get the highest return on investment.
Placing savings in a peer-to-peer investment might not be right for everyone, but those who qualify can take advantage of these high earning options as they save for the future.
~ Here’s to Your Financial Health!