Is Peer To Peer Lending A Good Investment Idea?

Hey everyone, Josh here again, and thank you for joining me for this week’s Monday Money. I’ve been on a big investing kick since I started investing myself a few months back. I’ll tell ya, I should have started this much sooner. Anyway, I’ve been strolling along on several different blogs and I keep seeing the peer to peer investing idea pop up. So, I figured I’d chat about that a bit this week and see how it turns out.

What Is Peer To Peer Lending?

Have you ever let a friend or family member borrow money? Well, that’s a small form of peer to peer lending. One of your peers needed money, you offered a loan. Well, this idea has given way for an entirely new industry. There are millions of people out there that want loans, but don’t want to deal with banks. These people are willing to pay competitive interest rates, make monthly payments, and do what it takes to keep the loan in good standing, at least in most cases. So, if another consumer were to fund that loan, they could potentially make a good amount of money in interest.

I Don’t Know Enough People That Need Money For It To Be Worth My Time!

Well, you may not know them, but they’re out there. You don’t have to look to far either. Because there is such a high demand for services like this, there are tons of websites out there that allow you to offer these loans. One of my favorites is Prosper. Among several other reasons I love them comes the fact that they have so many loans available for funding!

Is Peer To Peer Lending A Regulated Market?

When you invest in the stock market, you know that there are rules and regulations that help to safeguard your money. So, looking into new markets, it’s definitely understandable to want to make sure that they are regulated as well. However, when it comes to peer to peer lending, there’s no big S.E.C. watchdog keeping an eye on heavy hitting players to make sure everyone follows the rules.

However, to an extent, that’s a good thing. The truth is, when things become regulated, they become more expensive both for the business and for the investor, or in this case, the borrower and the investor. That’s because new regulations take time to tend to, and we all know that time is money! As long as people remain civil about peer to peer investing, keeping it unregulated will help to keep costs down.

How Big Of A Risk Does A Peer To Peer Lending Investor Take?

Well, that really depends on the investor. They can choose to fund riskier loans or they can choose to stay on the safer side of the margin. However, as with any loan, there is a risk of loss. Let’s face it, a consumer could potentially borrow thousands of dollars and not pay back a dime. Leading to a huge loss for the borrower. On the other side of the coin, a business could technically go out of business a month after you invest in them and you can lose all your money that way too. The key to any form of investment is diversification. That being said, no matter if you’re investing in the stock market or you’re investing in peer to peer lending. As long as you maintain a diverse profile, you greatly reduce your risk of loss.

Resolving Some Myths About Peer To Peer Lending

Myth #1: It Takes Forever To Find Good Loans: The reason most of the people I’ve talked to have decided against peer to peer investing is that they don’t have the time it takes to find good loans to fund. The truth is, with a good program, it doesn’t take much time at all. With an option like Prosper, you’re given an online platform that makes finding loans worth funding a piece of cake. Because they have so many people looking for and funding loans in their system, no matter what you consider a quality offer, you’re sure to find tons of them with a simple and quick search.

Myth #2: Peer To Peer Lending Is Too Dangerous: If you’re saying this, you obviously haven’t seen any of the collapses in the stock market. The truth is, any form of investing is dangerous. However, there are always ways to decide how much risk you’re willing to take. If an investment seems to risky, don’t take the risk. Also, diversifying your investments in any setting will always alleviate the risk of investing. The bottom line is, peer to peer lending isn’t too risky, it’s just a new concept that many people are afraid of.

Final Thoughts

No form of investing is a perfect answer for everyone. Each different investment concept comes with it’s own risks and rewards. However, peer to peer lending is a great idea for tons of investors. To find out if it’s right for you, I suggest a small test investment. See how it turns out and make an educated decision after a viable test.

Reader Question

Have you ever taken part of peer to peer investing? If so, how’d you like it? If not, would you consider the option?