Peer to peer lending is a very popular financing method that matches businesses or individuals who are in need of money to those who want to invest money in loans. It does not involve any bank or financial institution which makes the process convenient and straightforward. The main thing behind the attractiveness of peer to peer lending Vs stock is that the investors can get high returns by investing their money instead of saving it. It also has benefits for borrowers. Such as they can get funds quickly and at a lower rate than traditional borrowing methods.
Process of Peer to peer lending:
The process of lending or borrowing money takes place online through different p2p lending platforms. These platforms act as an intermediary and match lenders with potential borrowers. Moreover, p2p platforms perform all the crest and affordability checks on the borrowers. When the borrowers pass these checks they are presented to investors so that they can choose from them and grant loans. The process of pre-qualification can vary from platform to platform. But generally, platforms assess borrowers on the basis of credit score, income source and work history. These platforms charge fees from borrowers and inventors to run their businesses.
When it comes to investing your money you may have many options so it can be difficult to choose the best one for you. Here in this article, we are describing a few ways to compare p2p lending with the stock market. So that you can make better decisions to invest your money.
Volatility
One of the greatest threats to your investment portfolio is the volatility of its components. Because volatility can destroy your profit in the short term. Volatility is an unexpected change in the return you get from an investment and it is an important aspect to consider when deciding where you should invest your money. Volatility is affected by several factors such as economic crisis, political developments and public relations. The stock market is very volatile which means you can get high returns but there are also chances of losses with changes in the economy.
On the other hand, the p2p market is not considered volatile. When you invest in p2p loans the interest rate is decided at the time of lending money and it is fixed. It means no economical change can affect your return. However, external factors like financial downturns and regulations can increase the number of defaults.
Returns
When comparing the rocks with peer to peer lending UK you should consider several things because these two investment types differ a lot here. When you invest in stocks you can get the profit in the form of dividends or if the value of the company increases. The return you can earn depends on how much you invest and for how long. The returns that you can get from stocks are not always predictable. In contrast, when you invest in p2p loans your returns are predictable and you can make money in the form of interest from p2p loans. There is always a risk of default in p2p loans. If a borrower defaults, you can lose all your money. However, you can reduce this risk by investing in multiple loans.
