NEW YORK, March 28, 2022 (GLOBE NEWSWIRE) -- Thanks to the growing prevalence of intuitive online platforms such as Yieldstreet or Robinhood, investors today have more options to choose from than ever before. One increasingly popular option in the online investment space is peer-to-peer lending, more commonly referred to as "P2P."
P2P platforms like Upstart or Prosper give investors the opportunity to provide direct loans to individual borrowers, and without the need for a traditional financial intermediary. For many investors, this can be a great way to earn passive income while also helping others to reach their own financial goals and aspirations.
To better understand if P2P lending might be a wise investment, let's look at some of the pros and cons, as well as some potential alternatives to the P2P space.
PROS OF PEER-TO-PEER LENDING
Passive Income. Much like a traditional loan agreement, borrowers will often be required to make monthly payments on their loan, allowing investors to sit back and watch their returns flow in at regular intervals.
Low Barrier to Entry. Investors don't need to be millionaires to get involved in the P2P space. In fact, one of the most attractive aspects of the asset class is that almost anyone can participate, with options available to fund loan notes in increments as small as $25.
Control. For some investors, having control over investment strategy is extremely important. P2P platforms provide investors with control and flexibility, allowing them to choose everything from the type of loan, the length of the term, and the criteria that a borrower must meet to be approved.
CONS OF PEER-TO-PEER LENDING
Defaults. As with any loan, there is always a distinct possibility that a borrower will default. Because P2P loans are unsecured and, therefore, not backed up by collateral, investors risk losing everything if a borrower is unable to hold up their end of the bargain.
Lack of Liquidity. P2P loans are largely illiquid investments. In the absence of a thriving secondary market, investors need to be comfortable holding on to these loans and, in most cases, seeing them through until the end of the term, provided the borrower does not default.
No FDIC Protection. Unfortunately, P2P loans are not FDIC insured, which means that investors will be left empty-handed in the event that a platform fails or a borrower can't fulfill their payment obligations.
ALTERNATIVES TO PEER-TO-PEER LENDING
While P2P loans have some attractive upsides, there are plenty of other alternative investment opportunities available that offer similar, if not even more enticing, benefits.
For example, those looking to generate passive income through a smaller investment, but who would rather trust the strategies of more experienced investors, can get started with Yieldstreet for as little as $500. With investments in asset classes previously unavailable to retail players, such as art finance and commercial real estate, Yieldstreet offers a number of collateral-backed opportunities that have the potential to earn annual returns ranging from 7-15%.
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