Why we love Peer-to-Peer lending


In this
climate of low interest rates, casual investors face a problem when it comes to
seeking income; do they invest in stocks, which fluctuates by the day, is time
consuming and requires a certain amount of expertise? Or should they invest in
investment funds, which despite their fees, are still considerably risky? What
about fixed deposits, whose relative safety comes at the cost of low interest
rates, usually insufficient to even keep up with inflation rates?

What does
all this have in relation to peer-to-peer (P2P) lending? Well, it may be the
answer, or at least a very interesting option, for these investors. If you are
seeking the reasons as to why you should start looking at P2P lending as an
alternative income source, read on.

1. The returns!

It is easy
to see the appeal of P2P lending since returns
average between 9% and 14%
in a time when stock markets are volatile and
most categories of bonds are offering rock-bottom rates. When compared to the
safer class of assets, such as fixed or bank deposits, the contrast is striking
with banks and financial institutions offering extremely low or even
zero/negative real rate of returns.

It may seem
overly-simplistic to compare P2P lending with fixed/bank deposits this way; but
to grow your wealth or at the very least, preserve it, the interest rates you
can get with such forms of investments are on average, too low to even keep up
with rising prices. There is also usually a caveat with saving
accounts/deposits that offer slightly higher rates, be it requiring for you to
tie your money down for many years, or spend a certain amount each month.

2. Expertise/time required

Compared to
investments such as stocks or bonds, P2P lending is a much easier thing to
understand. Here’s how peer-to-peer lending functions at Funding Societies
(from our very own
FAQ):

“We help borrowers secure loans for
growth, investors to get good returns for their loan investments and banks to
reach the under-served SME segments. The investors crowdfund into the loans and
earn returns through the interest paid by the SME borrowers.”

It is as
simple as that. It is considerably simpler to grasp than say, investing in
stocks, which not only requires a considerable amount of proficiency but a
significant amount of time as well. With P2P lending and at Funding Societies,
due diligence and credit assessments on the prospective borrowing companies
have already been performed, which is another piece of timesaver for investors.

3. Low barriers to investment

With a
S$1000 minimum first deposit and S$100 investment per loan at Funding
Societies, the barriers to start investing in P2P lending cannot be much lower.
With your first deposit, you can potentially diversify into as many as 10
companies and achieve a good level of diversification with this considerably
low investment amount. There is also much more flexibility available as
investors will be able to choose from loans with tenors ranging from 3 to 24
months, as compared to assets which will require you to lock-in your funds for
a period of time in addition to the high capital requirements.

Based on
the above, it is safe to say that P2P lending puts forth an extremely strong
case for investors, casual or otherwise, to consider allocating part of their
portfolio to such investments. To find out more about investing in P2P lending
with Funding Societies, visit our
investing
page. With our use of an independent escrow account and our astute credit
assessment process (as affirmed by our 0% default rate), it is certainly worth
signing up with us and starting your investing journey
into P2P lending with us!