In this article, we will get into the reasons why p2p lending is a good investment, all the p2p lending benefits and why I believe you should add this asset class to your portfolio.
This is a summary of the reasons I took into account before I started investing in this asset class, and this is something that I found useful when contemplating p2p lending investments.
Attractive Yields Between 11% and 21%
The platforms I use have yields between 11% and 21%. Usually, I am more than happy with returns over 10%, but if you are a more risk-averse investor, you can find loans that have extremely high yields. Mainly in business crowdlending platforms.
Here are some examples.
- Mintos: 12.5%
- Grupeer: 13.5%
- Robo.cash : 12%
- PeerBerry : 12.5%
- Fastinvest: 13%
- Swaper: 12 or 14%
- ViaInvest: 11%
- Crowdestor: 13-21%
- Envestio: 14-21%
- Kuetzal: 14-21%
You can check my monthly income reports to get monthly updates on my returns as well as my list of the best p2p lending platforms in Europe as well as platform reviews when you click on any of the platforms above.
A significant benefit to the people that invest in this asset class and secures the investment is the Buyback Guarantee. This guarantee ensures your investment against borrower default. Usually, if the borrower delays the payment to the loan for more than 60 days, the platform will buyback the loan from you for the full principal plus interest for the period you held the loan.
This point is something crucial to p2p lending investors; hence, most platforms offer this guarantee.
Easy To Diversify
Lending money is a risky business, and unless you lend 10€ to different people. At worst, you lose a small portion of that even if the buyback guarantee fails.
You can easily diversify your investment by lending to different people in different types of loans and in different countries. The advantage of investing in P2P lending is that you can diversify on the same platform in different countries, and in various types of loans. The risk is significantly reduced, and therefore, this reduces your risk considerably.
The majority of the platforms and all platforms I use do not have any fees for investors.
There are no portfolio management fees, transfer fees, withdraw fees, or any other type of fees fo that matter.
This is has a significant advantage vs. the stock market since most brokers charge high fees to their customers.
This is very important to me because even a small fee can cost you thousands of euros in the long run.
Stable and Predictable Returns
When you lend, for example, €50,000 at 12% through a platform, and the lender pays you back, you will get €6,000 in interest within a year (without compounding). So you can easily plan your interest income each month in a stable manner.
As you understand with p2p lending, you will have a predictable and steady income every month.
Low Barrier To Entry
The minimum investment in most platforms is usually just €10, so it is very easy for anyone in any budget in any income bracket to start investing. There are some platfroms like Crowdestor with a €50 minimum and some others like Envestio or Kuetzal with a €100 minimum, but that is also considered low.
You can check my platform review here to see the minimum investment in individual platforms.
Most platforms offer something called “Auto-Invest” you can simply deposit your desired amount in the platform, set your auto-invest parameters, and let the auto-invest feature invest for you.
If you are like me and you want to have complete oversight over your investments and don’t want to use this feature, it still requires minimal effort on your behalf to manage your p2p lending investments.
However, most people enjoy the auto-invest feature, and some also say that they have noticed better results since the auto-invest function is fust and can quickly snap the highest interest loans first for you. I don’t know if that is true, but I will stick to my guns and keep doing what I am doing. This theory has, of course, merit and makes sense to me. I just choose a different investing approach.
Many platforms offer some very generous cashback promotions when you sign and invest though some of my affiliate offers. You can check all available offers on the p2p bonus page.
I left this for the end, but this is actually a fundamental reason I am invested in p2p lending. I am sure you have heard about the compounding effect while researching investments, but it is particularly profound with p2p lending. Check out my monthly income report, and you will see that even without additional investment my income is increasing month after month just because I reinvest the interest payments I receive from loans I am invested in.
As you can see in the graph above, this is particularly important to people with a long term investment horizon such as myself.
P2P Lending Benefits- Conclusion
These 8 reasons are the primary factors that I chose to invest in p2p lending in the first place. Of course, there are others, but I want to keep this post short and sweet, so to speak.
One thing I want to stretch out is the importance of diversification when it comes to this asset class. I touch this during the article as well, but I wanted to mention it again because it is essential and you should never forget it. This, of course, does not only apply to p2p lending alone but any investment you decide to make.
Thank You for reading, I hope you enjoyed the article and made sure to share.