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Peer-to-Peer Lending: Is It a Safe Option for Borrowers & Investors?

By Nicolas Moore | September 6, 2022

If you do not know about microlending, you might wonder if it is a safe form of investing and borrowing.

Peer-to-peer lending might seem new to you, but it is becoming a popular form of lending and borrowing for everyone. When you want to take out a small loan, microlending is an opportunity to get the money you need quickly and easily. If you want to find a new investment opportunity, peer-to-peer lending can offer great flexibility and profit.

Whether you need to borrow money online or want to invest more, see if peer-to-peer lending is a safe option for you to pursue.

How Peer-to-Peer Lending Operates

Peer-to-peer microlending is unique since borrowers receive funding from investors and not banks. The experience is different between investors and borrowers, helping each party find success in any of their goals.

If you are an investor, your money directly funds the loan that a borrower will receive. That creates a unique investment opportunity that is different from the more conventional ways people use often. By being the sole lender of the loan, you have more opportunities to make money and be in control of your profit.

On the other hand, if you are a borrower, the process is similar to when you receive a standard loan. You apply for a loan through a microlending app and work directly with the investor that funds it for you. When you apply for a loan, you have much more flexibility as you can share your reason for the loan with the lender.

Microloans are also different because they are great for much smaller amounts than large bank loans, which are more common. When you need less than $2,000, microloans are the best way for you to borrow the smaller amount and pay it off quickly. Without peer-to-peer lending, you may feel lost as you cannot borrow that small amount of money from traditional lenders.

Bank loans typically do not lend below $5,000, potentially making you borrow more money than you need. If that happens, you can owe much more than you can comfortably repay and could easily struggle more in the long run. With microloans, you get the funds quickly while not being overwhelmed to pay them off.

Microlending can be a good option if you need small amounts for emergencies.

Is Peer-to-Peer Lending Safe?

If you are interested in peer-to-peer lending, you might wonder if they are safe to use like a bank loan.

For Investors:

* Peer-to-peer lending is safe when you take the necessary precautions to keep your money more secure. One of the most common ways to keep your money safe is to ensure you diversify your portfolio, placing your money in multiple places. That way, if one loan defaults or something goes wrong, you have other investments to balance everything.

* Since you control the loan, you can set the terms to get your investment back quicker. That way, your investment will profit and get everything back quickly, so you do not lose as much if something happens. When you invest in a microloan, getting your money back should be your number one priority throughout the entire process.

* Also, microloan investing is safe when you use a trusted micro-lending app like Lendee. Lendee scores of the borrowers help you decide whether to invest in a borrower and at what loan terms.

For Borrowers:

* Microlending is a safe way to borrow small amounts of money when you need more funds for anything. Once you connect with an investor that will fund your loan, you can find the peace that it is safe. You will receive your money and then begin paying them back over time per the terms you agree to with an investor.

* One positive thing about peer-to-peer lending is that credit score requirements differ from traditional loans. Since you work directly with the investor, there is more flexibility because you can still receive money no matter your situation. That allows you to be safe and secure in your financial situation, so you can get the lending assistance you require.

* You can stay safe by making sure that you have the money from the loan before you commit to buying anything. That way, you are not promising to pay for something that you do not have the money for yet. Staying safe by not overspending is a great way to keep your debt low while staying productive in paying everything off.

Is Peer-to-Peer Lending For You?

If you are wondering if peer-to-peer lending is a good option, you need to consider its different aspects.

Investor Risk

When considering peer-to-peer lending, you must consider the inherent risks that come with it.

With any investment, there is always the risk that you might lose your money somehow through the process. That risk is not super common, but it could be a fear you will have to confront when you let go of your cash. As mentioned, peer-to-peer lending can leave the risk of defaulting borrowers whenever someone funds the loan.

Another risk any investor might confront is deciding how much money they should give people. If they invest a lot, there is always more risk than is possible since there is more on the line to lose. Every investor needs to decide if the risk is worth the profit microlending brings when considering if investing is right for them.

While risk might seem scary, it is relevant in any investment and must need the attention it deserves like others.

Borrower Risk

While investors face one type of risk, borrowers deal with a new set of risks they must avoid.

Sometimes, a borrower might lose their job or have a sudden change in income like that. While that is an enormous risk, peer-to-peer lending offers more flexibility for those borrowers who fall on hard times. A borrower can use a microlending app and work with the investor directly to extend the loan term or work out smaller payments.

Also, borrowers risk their credit score getting damaged if something goes wrong with the loan and they cannot pay it on time. The investor cannot help much with this, but the borrower should always ensure they can pay their loan.

There are certainly fewer risks for borrowers than investors, but there are always things to consider for both parties.

Start Microlending!

Finding a good microlending platform is essential for discovering success since the entire process is taken care of online.

If you are looking for a good microlending platform, Lendee is here to help you start your investment or borrowing journey!

Lendee can help investors find loans to fund while assisting throughout the process of lending money and turning a profit. It can even manage all the payments to help investors focus on pursuing more opportunities to make more money.

Lendee can give borrowers an easier way to connect with investors, a Lendee score, and payment reminders. Lendee assists everyone in finding the investor that is perfect for them to locate the loan they need. Every borrower receives a Lendee score which combines their:

* Credit score

* Spending habits

* Response times

The Lendee score gives investors insights to show them what kind of borrower someone is so they can understand the risk. Also, the payment reminders are helpful so that borrowers never forget to pay when they have to.