How safe is it to invest in peer-to-peer lending?

invest in peer-to-peer lending

The P2P lending concept is not new in India. You have local moneylenders in every village in India available 24x7x365 for fellow villagers to approach them for loans. These moneylenders assume greater significance than the banks present in the same village because of their easy accessibility. The online P2P lending platforms are an extension of the same moneylenders but in a structured and regulated manner.      P2P lending platforms have gained popularity as an alternative to traditional investments like FDs and RDs.

Let us now see how P2P platforms are safe ways of investment. For that, you have to understand the banking concept. Only then will you know the difference between the two.

Save Or Borrow Money Securely With India’s 1st Online P2P Chit Fund Platform 

How banks work

How does a bank lend money? The bank accepts money deposits from the public and uses them for lending and investment. As a result, the bank commits itself to pay a specific interest rate on its deposits to its customers while charging interest at a specified rate from its borrowers. You will also find that the deposit rates are low (around 3% to 7%), whereas the lending rates are high (7% to 12% or more).

How P2P platforms work

Unlike banks, P2P platforms cannot accept money deposits from people, but they can facilitate lending by bringing the lenders (investors) and the borrowers on the same platform. The platform invites lenders or investors to register themselves with the forum. Simultaneously, the P2P platform receives loan applications from people. Accordingly, it matches each lender to various borrowers who can negotiate the interest rates and other conditions, depending on the borrower’s credit ratings.

Usually, P2P lending platforms charge interest from 15% to 25% or even more, depending on the borrower’s creditworthiness. In addition, the platform charges a registration and facilitation fee. The rest of the interest amount is available to the lender. So, a lender or investor can make anything between 14% to 24% on their investment. Theoretically, this percentage is higher than what banks offer on their deposits (3% to 7%). So, the P2P platform looks like an attractive investment vehicle.

invest in peer-to-peer lending

Is investing in a P2P lending platform beneficial?

Theoretically, investing in a P2P lending platform is beneficial. If every person who borrows from you returns the money on time with interest, the investment in the P2P lending platform is indeed beneficial. But, it does not happen that way every time.

You have to contend with loan defaults. Since the loans on the P2P lending platforms are collateral-free, the lender does not have anything to fall back on except the support from the forum for filing suits and initiating recovery proceedings.

On the other hand, the bank investment is safe and guarantees you a return. Investing in the P2P lending platform has its shortcomings. The risks are high, and so are the expected returns. But, there are high chances of the investor losing their money. Therefore, the best alternative is to invest in the best P2P platforms like The Money Club, Faircent, LenDenClub, etc. These platforms have a lower default rate. You can restrict your financing to low-risk borrowers and get comparatively less but assured returns in investment.

With Money Club You Can Earn Around 10-20% Return On Your Investment 

How is The Money Club platform safe to invest in?

The Money Club chit fund is a better investment avenue because it enables investors to gain returns up to 21% on their investments. Therefore, the chit fund formula works to your advantage.  The Money Club chit fund platform has a customer base of members and has done of business turnover over as hort span of time. It is particularly concerned about the quality of membership. It connects you a group of verified members with whom you can pool up money.  We also have an excellent track record of recovery. 

Final Thoughts

Theoretically, the P2P lending platform should be an excellent investment avenue that consistently fetches more than 20% returns. However, the reality is different because of various factors. The borrower default is a significant issue. But, if you choose your borrowers well and follow up on your investments properly, the P2P lending investment is better than banks. But from the safety angle, the bank deposits are always safer because of their 100% return guarantee.