How can you lower your risks and how do P2P lending platforms help you in case of default?

by Arjun Bhatia Blogger

Peer to peer lending is the new borrowing mechanism which is taking the financial sector by a storm. It’s becoming very popular due to its convenience, safety and high rate of returns. Peer to peer lending platforms actually bring together borrowers and investors and facilitate the borrowing and lending process. It has witnessed significant growth in the past decade. So, if you’re looking for low risk investments, P2P lending platforms are for you.

P2P lenders offer low risk and stable investments options as opposed to the high risk and volatile stock market investments. P2P lending has opened doors to a brand new form of investment with quite an attractive risk profile. A number of researches conducted on these platforms showed that these companies had better performance and results than traditional banks.

There is no investment option that comes with no risk. No matter which investment option you choose, there will always be a risk factor. The only difference would be in its density. Some have lower risks while others have high risks. The main risk involved with P2P loans is the risk of default by the borrower. Even though these platforms verify their borrowers and are addressed by high quality borrowers, there is a risk of default since the P2P loans are unsecured. One way to mitigate your risk is diversification.

Instead of lending money to a single borrower, split your money into small loans and invest them in a number of borrowers. This way, even if one borrower defaults in repaying the loan, your entire investment does not get tanked along with him/her. This lowers your risk even further. In case of default, you can legally sue the borrower. P2P platforms can also offer you third-party legal opinion and try to recover the defaulted amount with steep penalties charged thereon by deploying their own human resources for no additional fees.

P2P lending platforms are quickly gaining traction among investors, especially those who seek low risk investments. And if done right, you can further lower your risks and earn high returns on your investments. In a traditionally conservative investor community, like that in India, P2P lending represents investments with high returns that offer gains at relatively lower risks.