When it comes to investment, many people think about stocks. However, there are many other asset classes available to investors. With the interest rates on bank and savings accounts remaining low, investors are looking for alternatives to traditional savings to earn a high return on their investment. One alternative that is getting popularity among investors is peer-to-peer lending because of the high return rate. Although high interest rates can tempt investors towards more risk, it is also essential to keep in mind that all investments carry risk, and you may lose all your capital. Let’s compare Peer to peer lending with other investments to find out which option is the best.
P2P Lending Vs Savings Accounts
The return rates of bank savings are relatively low. If you put your funds into savings accounts for a long time, you may lose your capital to inflation as the cost of goods and living increases day by day. You will see that you may eventually lose your spending power. It can make sense to hold your money in savings accounts when you need your funds in the short term. But if you do not need the money, it is better to invest in alternative options like Peer to peer lending and grow your money with compounding interest.
P2P Lending Vs Stocks Market P2P lending and bonds are almost the same as both are debt instruments, and investors usually get a fixed return over a fixed time. When you invest in bonds, you are lending money to the companies or government, while in P2P, you lend money to individual borrowers or small and medium businesses. The bond issuer usually pays interest after a predetermined interval, but you will receive the capital when the loan ends, while in P2P, you can get a monthly installment of the principal along with the interest until the entire amount is repaid. Bonds usually have longer maturity, usually, ten years, and P2P loans can last from a few months to a maximum of three years.
P2P Lending Vs Crowdfunding
The stock market has been in the investment market for centuries and has proven itself. It is a good option if you have diversified investments and want to invest for a long time. However, the value of stocks and return rate varies continuously with economic shocks such as oil prices. In the year 2018, the stocks market had a significantly poor year, and when you compare stocks with P2P, you can see that the return rate of P2P was 26% higher. Peer-to-peer lending is a better way to go if you want to start earning over a short period of time.
P2P Lending Vs Bonds
Both peer-to-peer lending and crowdfunding are often regarded as the same because, in both methods, the investors lend money to the borrowers. The significant difference between these two terms is that P2P lending is loan-based, and crowdfunding is equity-based. In crowdfunding, your goal is to fund a project or business, and in return, you receive a discount on products or equity in the company. On the other hand, in P2P, you lend money to individuals or businesses and start earning a monthly income as a return on investment. In crowdfunding, you have a direct relationship with the borrower, while in P2P lending, the lending platforms do not provide you with the identity of the borrowers.
P2P Lending Vs Real Estate
There are many ways to invest in the real estate market and also various types of real estate deals. When we compare it with peer-to-peer lending it is clear that P2P has a clear edge on returns on investment. With p2P lending, you can earn 10 to 15% returns, and with real estate crowdfunding expected return rate is 3 to 7%. In terms of risk level, real estate crowdfunding is less riskier as in the case of borrower defaults you can claim on the underlying property and can recover debt easily.
Every investment method has its own risks and rewards. The same is with peer-to-peer lending. The type of investment you choose depends on various factors such as your individual circumstances, risk appetite, and investment knowledge. We suggest you to diversify your investment among different asset classes to reduce the risks and gain maximum returns.
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