Why P2P Lending is a Good Vehicle for Investing

Jul 31, 2019

Are you fed up of the fixed rate investment options available in the market that pay nothing but peanuts? Then hear this out: Peer-to-peer or P2P lending would be perfect for you. While it sounds risky at first, you need to realize that it offers a huge potential to give you tons of earnings that is unheard of in other platforms.

How investing works for P2P marketplaces

Before getting into P2P investing, you need to understand what it entails and how it works. P2P platforms bring together common people, also known as peers to participate in the two sides of every transaction – borrowing and lending. Borrowers apply for loans through each provider’s unique processes while investors or lenders fund their applications.

The P2P platform then becomes the middleman or bridge between these transactions.

With P2P investments, you are placing your money on loans and get the money back through the principal and the interest. In other words, every time a borrower makes a repayment, you’ll earn your monthly interest upfront, while you’ll receive your principal back in full at the end of the loan term (i.e., after a year).

To ensure that your money is rolling, it is recommended that you continually reinvest the money via the platform.

Is P2P investing good or bad?

P2P lending can work well for investors who fully understand the risks and responsibilities involved in the trade. P2P platforms typically offer higher return rates and this is essentially why they attract investors. A good chunk of P2P loans are high risk, meaning the interest rates are higher, and this enables higher and more attractive returns for investors.

With P2P borrowers, however, there’s a likelihood of defaulting which can cause an investor to lose money, so it pays to know the ins and outs of the system well. With the transparency and consistency offered by platforms like Blend PH, these risks are more often than not, minimized if not completely eliminated.

P2P lending and traditional investment options

There are many kinds of investments available out there that have different levels of risks and returns. It’s good to find out what they are before investing your money. This section highlights how P2P lending compares to these options.

Savings accounts

Opening a savings account with any major bank is perhaps the most common way to invest money. But with this method, you’re just practically storing money. The banks are earning from it; you’re not. Surprise, surprise!

Here’s the thing. When you deposit money to your account, you’re actually lending them your money. How much interest does that make you in a year? A few pesos? Your bank transaction fees are probably higher than what you’ll earn in that period.

Time deposits

Like savings accounts, you’ll get interest from investing your money for a fixed period of time with these banks. But ask yourself then, is it worth waiting five years to get a few thousands out of your PHP 100,000? You’re probably better off investing and reinvesting it somewhere else to get an equal, if not a more attractive return in a year or less.

And the biggest issue with time deposits is that you won’t be able to withdraw the money in the event of an emergency. With some banks, you can, however, you won’t be getting the full return anymore.

Stock market shares

Stock trading works this way. When you buy shares, you’re buying a small part of a public company. If this company makes money, you’ll get dividends, or a share of their profits. Stock market prices are generally expected to go up and fall in value. This is inevitable, so you have to monitor your investments every single day.

While it has become easier to invest on the PSE today, some people are just too busy to do this type of monitoring daily. And when you start losing track of your investments, you can also be vulnerable to losing your money.

Currency investments

Foreign exchange investments, just like the stock market, is an extremely volatile way to invest money in. Forex trading also requires a certain level of expertise, so it’s not that easy to dabble in especially when you’re not aware of how to navigate the space.

Property investment

Property investing is pretty straightforward. You buy a property, rent it out to someone for rental income, and increase the value through capital gain. While it sounds easy, practical, and imperative to invest in property, it’s clearly not for everyone. The capital needed to turn it into a full-fledged outlet for earning an income would be too much of an ask; even some people would have trouble buying in their own home.

Informal lending

Perhaps the most common and the most unassuming way of handing out your extra money is through allowing your friends and family to borrow it from you. Everyone who has access to money has probably done it at some point.

The real menace is in collecting the money from borrowers. When you don’t have a secure and structured process in place, it’s hard to keep track of all the money, and you’ll only get worried when it’s time for collections. Getting the “I can’t pay you this time” memo every time you ask for a repayment doesn’t make it an investment – it’s actually charity work.

P2P lending through Blend PH is a great choice, too

When thinking about the best way to grow your wealth, you really should consider the investment vehicle you’re going to ride on. There are so many types of investments. Each requires its own level of commitment. Each requires a certain level of risk. Each has a different return rate.

To get your money working for you, it’s good to aim for a mix of different investment types in order to spread the risk and results. Do your homework and get professional investment advice from the experts.

And while you’re at it, consider investing in P2P loans via Blend PH as one of your options. It offers you higher potential returns or earnings from your repayments. The monthly payments are done through our platform; we formalize the process so that you don’t have to worry about late payments and collections. This aims to smoothen the kinks and misunderstandings that typically happen between borrowers and lenders.