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Common Myths About Peer-To-Peer Lending

By Nicolas Moore | July 21, 2022

There are a lot of myths about peer-to-peer lending that are starting to gain more ground as it continues to develop. 

Peer-to-peer lending is a unique type of lending that many have not heard about, even though it offers more options for people to get the money they need. Due to its unusual nature, myths about this lending option are developing as people continue to learn more about it. Even though people doubt peer-to-peer microlending, it is a viable investment/loan option for investors and borrowers. 

Defining Peer-to-Peer Lending

Peer-to-peer loans are smaller loans funded directly by investors to borrowers.

Also known as microloans, peer-to-peer lending is distinct from traditional lending primarily due to where the money is getting funded. As mentioned, the money in peer-to-peer loans is funded directly by investors instead of a financial institution. Banks typically fund loans from monetary capital they sustain from their customers, but they handle the entire funding process. With microlending, you develop a connection with an investor so they can fund your loan. 

Since the money comes directly from the investor, that also means that the loan terms are more flexible than with a bank. You can work with the investor to figure out payment terms, fees, and anything else that might be negotiable. Instead of getting stuck with whatever terms the bank deems good, you can work with investors and potentially come to a better consensus. The complete lending experience becomes much more personal and easy when working with microlending. 

These loans are popular because investors can lend out smaller amounts than banks. When an investor is financing your loan, there is much more flexibility than with a traditional bank loan. Instead of having strict credit checks that will deny you in a heartbeat, the investor can work with you so you can get the loan you need regardless of your credit. You can also speed up the process with peer-to-peer lending because once everything is determined, the funds are released. 

Peer-to-peer lending is a unique way to borrow a loan that can help you get small amounts of money you need. 

Common Myths About Peer-to-Peer Lending

P2P lending is unique, and many have developed a few common myths regarding its terms and processes. Here are a few of them.

1. P2P Lending Is Unreliable

A common misconception about peer-to-peer lending is that it is an unreliable source of money for both borrowers and investors.

Since microloan investing involves lenders helping borrowers directly, they get afraid that they will not profit or that it will be hard to manage their investment. Many believe that because someone has to pay them back, there is not enough consistency for people to pay them on time. That has made many believe that microlending is unreliable for making money or receiving a loan. 

While this is a common belief, microlending is much more reliable than many assume. There are microlending platforms investors and borrowers can use to manage their transactions. The process is more reliable because the microlending platforms handle everything for borrowers and investors. If a borrower is late on a payment, the system notifies them and works to get their payment secured. When you use a trusted microlending platform like Lendee, you do not have to worry about getting your money back because it takes care of the entire process. 

The peer-to-peer lending process is not unreliable as most people think. It is a fantastic opportunity for investors to make a profit and for borrowers to get money instantly.

2. You Will Not Get Your Money Back

Along with worrying about reliability, many investors worry about getting their money back when they invest in a microloan

Lenders get nervous that they will give their money to someone and never see it again for the foreseeable future. It is a big commitment to invest money because there will always be anxiety when anyone gives their money to someone else to turn a profit. The biggest issue for many is that peer-to-peer lending is new to them, so they do not trust the process and the way it works. It is easy for people to assume they will never get paid back. 

As mentioned, this is not the case as there are microlending platforms with systems that help investors keep track of their money. It makes sense that people are struggling to trust the peer-to-peer lending model, but it is an issue that platforms can handle. If a borrower misses a payment, the system will know and take care of it for the investor, so they get their money back and profit from it. 

Peer-to-peer lending is trustworthy and works to help investors get their returns on investments. 

3. Peer-to-Peer Lending Is New & Risky

Since many people do not know what peer-to-peer lending is, they also believe that it is new and full of risk. 

Peer-to-peer lending is still picking up, so many think it is a new form of lending money that is changing the industry. With people thinking it is a new method of investing and borrowing, there is an assumption that many risks are involved. It is common for all this to take hold of people’s minds and push them away from the entire concept because this myth holds a lot of influence. 

The fact is that P2P lending can be traced back to 2005, making it newer than traditional loans but not brand new. Since many people have never heard of peer-to-peer lending, they assume it is a new way to borrow money. With over 17 years of existence, peer-to-peer lending has the experience that proves it is capable of a usable lending option. 

Also, there is not as much risk as people assume in the not-so-new way of lending money. As peer-to-peer lending continues to develop, the risk decreases as it becomes less risky by the day. 

4. The Interest Rates Are Unknown 

While banks always post their interest rates online, many believe that microloans have unknown mystery rates.

Since many do not know what peer-to-peer lending is, they assume that the current interest rates are simply unknown. With a traditional loan, you can go on the lender’s website and find the rates immediately to see what they might receive with their loan. With peer-to-peer lending, this is not the case as the interest rates are determined differently, playing into the idea that the rates are just unknown. 

While borrowers may not know the rates before they begin the borrowing process, they will know them once they start getting their loans. The rates change as the investor lends the money because it is all conditional on the person borrowing money. If the borrower has a high credit score, the investor can change the rate to accommodate that because of the risk they will take. All these rates are apparent when the borrower agrees to the terms set by investors, allowing them to accept or deny them.

5. You Need To Be Rich To Get Started

As with many investment opportunities, people believe you need to be rich to start the process. 

Like all investments, many assume that only rich people with money can take advantage of investment opportunities. When investing, there is always a slight risk involved with potentially losing your money. That leads many to believe you have to be rich with a lot of money you can throw away in case something happens and the investment fails. 

While this is a popular myth, it is not accurate regarding potential investments with peer-to-peer lending. This investment opportunity is quite the opposite, making investing easier with less money. You can start investing in microloans with as little as $100 while you get your money back quickly and move on to more investments. Many have a chance to invest in microloans using a platform like Lendee and help fund people’s loans while profiting from them. 

Start Investing In Peer-to-Peer Lending

Now that we’ve debunked the myths, you have the opportunity to start investing in P2P loans with Lendee! 

Lendee is a trusted peer-to-peer lending platform that pairs investors with borrowers consistently to aid in the microlending process. Investors can sign-up and set criteria for the exact borrower they are willing to invest with, along with terms and fees they will agree to for the loan. Borrowers can also sign-up to start finding investors and receive a loan at a fair rate. 

Download the Lendee app today, or visit the website to get started!