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Peer-to-peer lending has attracted considerable attention in recent years, largely because it offers a novel way of connecting borrowers and lenders. But as with other innovative approaches to doing business, there is more to it than that. Some might wonder, for example, what makes peer-to-peer lending so different–or, perhaps, so much better–than working with a bank, or why has it become popular in many parts of the world.
Certainly, the industry has witnessed strong growth in recent years. According to Business Insider, transaction volumes in the U.S. and Europe, the world’s leading P2P markets, have expanded at double and, in some cases, triple-digit percentage rates, bolstered by widespread acceptance of doing business online and a supportive regulatory environment.
The financial world has witnessed the launch of many innovative products and services in recent years. Well-known examples include Bitcoin and other so-called cryptocurrencies, which many view as a substitute for traditional currencies; digital payment services that make taking care of bills and sending funds to family and friends a lot easier than it used to be; and online financial portals that allow people to access and monitor bank and other accounts from one location.
However, few of these innovations have proved to be the game-changer that peer-to-peer lending has been. In less than a decade, P2P lending has become a mainstream financial resource helping to match those who are seeking to borrow money for various reasons with those who are looking to earn more on their money. In fact, the global peer-to-peer market is expected to grow at a compound annual rate of nearly 50% through 2024, according to Transparency Market Research.
One obvious question, of course, is what is peer-to-peer lending? Generally speaking, it refers to an online marketplace where those seeking attractive returns can invest in loans to individuals and, increasingly, start-ups and existing companies. Powered by major advances in technology and the global reach of the Internet, today's most popular peer-to-peer lending sites represent a financial alternative that can benefit everyone involved.
For investors, "peer-2-peer lending," or "P2P," offers an attractive way to diversify portfolios and enhance long-term performance. When they invest through a peer-to-peer platform, they can profit from an asset class that has proven itself in both good times and bad. Equally important, they can avoid the risks associated with putting all their eggs in one basket, especially at a time when many experts believe that traditional favorites such as stocks and bonds are riskier than ever.
Major technological advances and the global reach of the internet have enabled platforms to turn their service-focused ambitions into an exciting and powerful reality. At the best P2P platforms, it typically takes only minutes – and a few clicks or touches, depending on whether you are using a computer or a phone – to sign up and start taking part, which is well suited to today’s fast-paced world.
Even if this was not the case, there is a lot to be said for the benefits of diversification. Academic researchers and investing professionals figured out long ago that one key to long-term investing success is to spread risk among various asset classes, including those that can generate regular income. Simply put, when you invest in peer-to-peer platform, you are not only exposed to an investment that has fared well over time, you also enhance the upside potential of your overall portfolio.
But the benefits don't just flow in one direction. For borrowers–who have tended to be individuals, though that is changing fast as businesses experience the benefits of P2P for themselves–online marketplaces have enabled them to obtain financing when they couldn’t do so through traditional channels. Because of increased regulation and risk aversion, banks and other intermediaries in many countries around the world have been unwilling or unable to lend to certain types of borrowers, even those considered creditworthy by most standards.
For those who are looking to earn attractive risk-adjusted returns, the next step is to provide the necessary details, including how much you want to invest and the strategy you prefer, which can be as hands-on or as hands-off as you prefer. You will also arrange to fund the account with an amount that makes sense for you and your long-term financial goals. Once that's taken care of, you can immediately put your money to work making loans to creditworthy borrowers.
Of course, at reputable online P2P lending sites, those who are seeking financing are evaluated based on well-honed underwriting standards, which helps ensure that they are offered interest rates and other terms that are appropriate to their circumstances. Seasoned lenders such as Bondora also work with institutional-quality service providers and, even more important, have their own skin in the game, which means they care about the quality of the loans on offer. And for those rare occasions when borrowers don’t live up to their responsibilities, Bondora has a well-managed default-control process in place.
This is especially true concerning near-prime borrowers, who have a good record of paying back their obligations on time. However, with bricks-and-mortar lenders being pressured to focus instead on the needs of top-tier clients–many of which probably don't need the money anyway–a less-than-perfect credit rating has not been enough to convince them of the merits of assisting borrowers in their own backyards. Under the circumstances, many have had little choice but to go elsewhere.
There are other reasons why borrowers and lenders can benefit from how peer-to-peer lending works. Instead of acting like a traditional middleman and grabbing a sizable cut from all sides, online venues earn their keep through full transparency and an operating model designed with the interests of clients in mind. As with any business, they exist to make a profit, but they also understand that the financial world is an increasingly competitive arena, where solid long-term relationships represent the difference between success and failure.
In reality, this is how most P2P lending marketplaces work, but some firms give their customers a whole lot more. At Bondora, for instance, investors have considerable flexibility when it comes to their investing strategy. Bondora knows that its customers, who hail from many countries around the world, can have very different needs and expectations when it comes to managing their finances and preparing for the future.
If you want to be intimately involved at every step of the way, Bondora offers in-depth historical data about creditworthiness and lending trends, as well as tools that allow you to fine-tune your strategy as much and as often as you like. However, if you prefer a less time-consuming approach, or just want to rely on Bondora's proven algorithms for identifying and selecting attractive opportunities, that option is also available.
Another reason why peer-to-peer lending works, especially in a region like Europe, where traditional operators have not been especially upfront about discussing costs or risks, is because it offers the kind of transparency that helps ensure a better experience for borrowers and investors alike. When both sides know what to expect and have all the details they need to make an informed decision, it reduces the uncertainty that can prevent them from striking a mutually beneficial deal.
Indeed, unlike with many traditional financing arrangements, it is common for borrowers and investors who participate in these online venues to view their transactions as "win-win.". Instead of walking away feeling like they paid too much or received too little in return for the risk they took, they understand that peer-to-peer lending sites enable them to work together in such a way that their interests are aligned.
Even in those difficult but predictable circumstances when borrowers fail to live up to their repayment obligations, the outcome is not an unwelcome surprise. With a firm like Bondora, for example, what happens next has been clearly laid out. Together with a well-managed default-control process, this helps ensure that when you invest in peer 2 peer platform, you are not taking the kinds of risks that seasoned investors seek to avoid. Instead, you are kept in the loop by a financial partner that has little to gain from taking advantage of its clients.
As with any industry, there are differences between the various peer-to-peer lending sites. It is important to consider technological and underwriting capabilities, customer service and support, and flexibility and ease of use, as well as other factors that can make the difference between a poor relationship and one that is made to last. Regardless of whether you are a borrower or a lender, an individual or business, or are large or small, it makes sense to know just what you are getting into.
With all of that in mind, one thing seems clear. For those who are seeking an attractive investment alternative, P2P lending is an ideal place to start.
Even knowing all that, it’s a good bet that there are other things you need to know about P2P lending. Many customers might wonder, for example, how long their money will be tied up if they invest in this way. While it's true that the loans on offer generally have terms ranging from thirty-six to sixty months, that doesn't mean you have to be fully or even partially committed for that period of time.
Indeed, one of the many Bondora P2P lending platform benefits available to investors is the ability to quickly and easily determine what happens to their money once it is in their account. Through sophisticated technology and user-friendly interfaces, the Bondora P2P lending marketplace provides you with two ways to ensure your funds are being deployed in the manner that suits you: one-click lending liquidity feature and the option to automatically fund new loans – through Portfolio Manager or Portfolio Pro – that meet certain criteria.
In fact, aside from giving you complete control over your investing strategy, today's technology enables you to take charge of P2P lending liquidity. What this means is that you determine how much cash you need to have on hand to accommodate changes in circumstances or other needs or requirements you might have. If, for example, you find that you have unexpected bills to pay or that your financial goals have changed, you can make the necessary adjustments in the blink of an eye.
Better yet, as with all of the other customer-oriented features that Bondora offers, you don’t have to initiate this action each and every time. Instead, using the automatic liquidity options that are available to all investors after signing in, you can arrange – at regular intervals or under conditions you determine – to either liquidate some portion of the loans you hold or take advantage of opportunities in Bondora’s active active secondary loan marketplace. You’ll be secure in the knowledge that your money is being managed the way you like.
All of these features and user-friendly advantages don’t even touch upon one big reason why investing in P2P lending makes a lot of sense. At Bondora, don’t just gain access to an asset class that has proven itself over time. You also benefit from what professionals have long described as the financial world’s only “free lunch”: diversification. In fact, you end up being diversified in two ways: you avoid having all your (investment) eggs in one basket, and your risk is spread among different creditworthy borrowers and loans.
Simply put, you shouldn’t just look at P2P lending as a new method of financing. Instead, you should see it for what it is – a sophisticated but easy-to-use strategy for achieving long-term financial security. Regardless of your circumstances or how much you have to invest, this innovative online investing alternative has a great deal to offer. Isn’t it time that you got involved?
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