11 Benefits of P2P investments platform

P2P investments platform is a relatively new rapidly developing alternative investing asset class. More and savvier investors choose to put their money in p2p platforms as it is a profitable investment tool. If you need to know why you should join them, look no further, Grupeer has prepared this article to highlight all possible benefits that come with investing in p2p loans.

1)            Attractive investment yield

Every investor, of course, wants to maximize their money and is searching for the most attractive interest rates on the market. This is especially hard, when interest rates offered by bank deposits are historically low- this actually drives the real interest rate (inflation minus nominal interest rate) into negative territory: – average inflation in 2018 in the EU calculated by Eurostat was 2.2%, while average interest rate for new deposit in Europe was 0.43%. This happens all over the developed world.

The low interest is resolved with the appearance of P2P investing platforms- many of them offer investment yield well above 10%. The return on P2P investing is even higher at Grupeer- maximum percent offered to investors is 13%. Many wonders, how this is possible, however, there is a simple explanation of how platforms manage to pass such high return to their clients. Grupeer and other P2P platforms are working with non-bank financial institutions, who issues loans to clients, who are not served by banks. This doesn’t mean the clients are risky, don’t worry! There are various reasons why banks rejected the client. However, the new technological era scoring models allow to adequately assess the risk of such clients. The underserved clients eventually receive the loan by new era fintechs but they pay a higher interest rate. This interest rate is eventually passed to P2P platform investors.

2)            Investing for all!

Some people think that investing is some sort of a closed club, accessible only by privileged. And there are reasons to think so- sometimes you need a large amount of money to make your first investment. Even if you managed to open a trading account, you need to possess specialized knowledge about investment management, what assets to invest and what to sell. Such knowledge is only available to professional investors. Another option would be to delegate your money to such a professional. However, they will charge individuals high commission fees and performance fees for their work. This creates high barriers to entry leaving a lot of people behind the closed doors of the investment industry. Such barriers contribute to the creation of inequality, which is already a big problem- the rich will become richer and the poor will become poorer.

The p2p investing platforms not only solve this problem but actually make investing accessible by literally anyone. At Grupeer, all you need to become an investor is reach your 18th birthday and have a bank account. You can become an investor by depositing as little as Eur10. Investing is easy, as p2p platforms offer a very clear interface and bare in mind, that all the risk analysis and hard work has been done for you by the risk analysts of a P2P company. The P2P investing platforms are a product of modern technology and like everything the technological advancements do, it contributes to social equality

3)            Financial Inclusion

The peer to peer investment platforms are facilitating the financial inclusion not only of investment activities. On the other side of the deal, there are businesses or individuals, who were excluded by the traditional banking sector. Very often P2P platforms place products that that was issued by micro financial institutions, who help to eradicate poverty. In some third world countries, access to finance is very limited and microloans are helping to improve the situation. Some might think that relying on microloans may cause trouble for the poor population, but the empirical research suggests otherwise.

The eight-year study conducted by Virtual Library on Microcredit found out that the poorest population of Bangladesh who didn’t have any access to any sort of finance only 4% pulled out of the poverty line. However, those individuals who had access to microloans, 48% could pull out of the poverty line.

To expand the operations micro financial credit companies usually seek additional working capital by placing their loans on p2p investing platforms. The P2P investors, on the other,the hand can decide whether they want to participate and lend their money towards micro-loans and feel that their money having some social impact in less developed countries. This brings us to the next point.

4)            Being in control

When you become a P2P investor, you have the full information where your money is, moreover, you decide where to put it. This might sound obvious, but think about the banks- when you deposit money into the bank account, your money is then are lent out to businesses via loans. You will never know where your money is operating and if you agree with the business that took out the loan.

With p2p investing platforms it is the different story- you know exactly which business loan your financing, and for what project. This gives you not only more information but also gives you a sense of importance- you decide who to lend money and who not. Same goes with consumer loans, as discussed in the previous point, you even can invest your money in the micro financial organization, who in turn help people to pull out of poverty line. This gives investors an extra satisfaction, besides the high yield, they feel they did something noble.

5)            Being a front-runner

Just think about the 500- year long history of the banking system- it almost never been challenged since its creation. Now is the paradigm shift. The technology has reached such level, that it gave rise to a new-generation of fintechs that are challenging the traditional banking system. The technology helps to invest money and borrow without the intermediation of banks. If you want to participate in the new wave of development and decided to participate in p2p investing, you are almost part of the big historical event. Moreover, the crisis of 2008 has removed confidence from the traditional financial system and many investors distrust or don’t want to collaborate with banks anymore.

6)            Trust

P2P investment platforms are not only intermediaries, that place loans for investment. P2P platforms are incredibly adding value by conducting thorough due diligence and place only loans with adequate risk/reward ratio. Grupeer, for example, employs top risk analysts, that are auditing the financial statement of non-banking financial institutions, their ability to BuyBack the loan and the scoring models that back up deals that they place on our p2p platform. This gives Grupeer clients a piece of mind when they access our platform. Our clients feel like they have entered a safe environment where all the hard work has been done for them.

7)            Diversification

All the philosophy aside, investors primarily care about the safety of their money. Of course, high yield is great, but is this compensating for the greater risk? Investing is a risky business, so the ancient wisdom says- don’t put all your eggs in one basket. When becoming an investor, you need to spread your money between different assets.

With p2p investing platforms this is much easier- because you get diversification in one place. Despite the availability of just one product- loans you can diversify your money by putting them in loans issued in different countries, business’s industry, maturity and so on.

When you invest with the p2p platform you get the diversification options in one place. With just one product (loans) you can spread your risks between different geographies, maturities, loan types, loan originators and so on. On Grupeer you additionally can choose between business loans and development projects.

8)            Freedom of choice

When you become a peer to peer investor, you will not limit yourself to a particular type of product. You will enter a universe of loans, where you can choose whatever suits your investment criteria- desired yield, risk, maturity. You will be the boss where to invest your money and for how long. On Grupeer, for example, you even can browse through business loans or real estate development project. Additionally, there is a big variety of loan originators, covering totally different geographies.

9)            Crisis protection

Some people are playing a waiting game and are cautious to become investors because they heard that the next financial crisis is not far away. This is true, the business cycle theory indicates that the crisis or economic downturn happens more or less every ten years, and it has passed more than ten years since the Lehman Brothers crashed. Besides that, many respectable research analysts confirm that 2019 is the year to expect an economic downturn. This is a nerve tickling news for many investors, as during the previous recession all asset classes have declined in price. The great news is, despite the fact that p2p platforms are a recent phenomenon, there is some previous experience. The very first UK-based peer to peer investment platform Zopa has been founded well before the downturn in 2005.

It is impressive, but the return on investments on Zopa not only didn’t decline in 2008 but yielded 4%2! This result is impressive since investors who have put their money elsewhere all saw losses. Of, course, the result of one company is not guaranteeing that others will behave the same. Most other platforms have emerged after 2009 and we will see how they will survive the crisis.

The good news is that the volatility on p2p investments is low. Even during the good times’ prices of investments might fluctuate and give a wrong sense of trouble. With p2p investment platforms, you don’t have this problem, you will always receive your principal back and their price won’t change.

10)          Being among friends

P2P investment platforms are not only democratizing access to investing. They also give you the opportunity to speak up, if you encounter an issue. There is a very strong sense of community between p2p investors and thankfully a variety of specialized forums exist with reviews, instructions, etc. Besides that, if you encounter an issue, you can write about it on a forum where the platform representative the other users will address your concerns.

Here is the list of some respected bloggers:

11) Protection against loss

When you lose money with other investments, it means you have encountered risk and nobody will compensate you for it. With p2p investment platforms, it is different. Grupeer, for example, offers a BuyBack guarantee. This means that the loan you have invested in defaults, the loan originator is obliged to BuyBack the defaulted loan, compensate investors for their loss of principle and pay all accrued interest. How great is that?

We really hope that listing the benefits of investing in p2p will help you plan your financial future. Investing is a risky business, but if you don’t invest, it is harder to achieve your financial freedom. P2P investment platforms offer a convenient and profitable way to earn a passive income.

 

References:

  1. euro-area-statistics.org/bank-interest-rates-deposits?cr=eur&lg=en
  2. https://blog.zopa.com/2016/07/15/zopas-performance-during-the-2007478-recession/

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