Tim Bennett Explains: The pros and cons of peer to peer investing

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Tim Bennett Explains: The pros and cons of peer to peer investing
pros and cons of peer to peer investing

Tim Bennett Explains: The pros and cons of peer to peer investing

The pros and cons of peer to peer investing

0:11welcome this explains finance video this week
0:15peer to peer lending what is it what are the pros one of the calls so I’m talking
0:20about it now it’s pretty topical because first of all it’s getting bigger and
0:24bigger business according to KPMG in Cambridge University this is a market
0:29that was worth 3.2 billion in Britain alone last year and more in the us- and
0:34that number is rising all the time so whatever it is it’s getting popular
0:38secondly from the 6th April here you’ll be able to invest in something called an
0:43innovative finance I see details still being hammered out as I speak but will
0:48enable you to shelter and investment in appear to be lend up within an ice ax so
0:53quite handy let’s take a look at what it is
0:57advantages and some of the downsides people can get very excited about these
1:01new ideas you need to understand what you’re investing in so it’s built on the
1:06principle of lending money twenty return to start with a basic alone outside of a
1:11peer-to-peer lenders so the idea is you lend you money to someone who needs they
1:16put it into a project needs financing could be a small business could be
1:21buying an asset hopefully whatever it is that using your money for it generates a
1:25return profits I and from that they can pay you interest over the term of the
1:31loan and eventually you get your money back and there’s a tradeoff here the
1:37riskier the borrower the project needing finance the higher the rate of interest

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pros and cons of peer to peer investing
1:43you hope to and the greater the risk that they don’t actually pay you back
1:47your capital now this is in peer-to-peer lending don’t strictly speaking of the
1:52way I want to talk about it is just making a loan now
1:58key factors is important voice coming up would include as the lender you wanna
2:03know how much problems right away because the person borrowing money not
2:08have the same amount in mind how long again you might have a problem you might
2:12agree five years you may not how risky risk comes in two guys if you like
2:19first of all when I get my money back at all
2:22secondly when I get back early and getting your money back early sounds
2:26great is a lender into you stop to think about it that means you won’t be getting
2:30all the juicy interest payments are you thought you were getting at the outset
2:34so early repayment can be as big a problem is non repayment at all
2:37a different style of problem and all the things you will think about normally
2:41what people do is hand over the bank right banks lending I don’t you learning
2:45or peer-to-peer stepped in and on you can effectively be kind of a bank let’s
2:52take a look at that now appear to be a ride either to like about eighty two
2:56models one thing I had a lender has been scaled website back by simply the people
3:01and kid can do for you is identified a pool of borrowers so bring it all

pros and cons of peer to peer investing
3:06together because otherwise you know you might not know any and then you choose
3:10the ones you think you want to lend to and the website enables you to make
3:15loans to those four people the kind of people you want to lend money to me
3:20you’re kind of ethical standards and so on but that is one way of doing it and
3:25the peer-to-peer lending website is just a facilitator of you like but it comes
3:30and headaches number one those four different interest rates
3:34number two different repayment dates and the three different risk profiles borrow
3:40borrow one might be ready low risk 404 moderately high risk so you got a
3:44manager and a lot of people that sounds like a bit of a headache is useful to
3:48have someone bring me some borrowers if you like to lend money so what a lot of
3:55peer-to-peer lenders will do as I write this takeaway la hasil will come up with
3:59a pool borrowers waiting of your money you will basically then lend money to
4:05the pool and get standardized rights in return so you’ll get maybe five percent
4:10over five years and let us worry about who these people are and so on and so
4:15forth will take away some of the administrative hassle but they’re taking
4:19away all of the risk of so that’s going to be quite popular why
4:24well you can see is popular because big names than the market is growing all the
4:29time these are just 30 great

pros and cons of peer to peer investing
4:31funding so wellesley out there for example also known as crowd lending but
4:37why they greater quickly while because I lenders point of view from your point of
4:42view
4:42big upside your money is being used but if i commercial purpose people like the
4:47idea of actually landing somebody needs the money to run a business
4:50all right number two generally gonna get much higher interest rates by Peter to
4:54pay and you get a savings account right number three
4:58by spreading your investment the second room you can reduce the default risk but
5:03not eliminate it and the idea of sheltering an investment within a nicer
5:07will appeal to people to next year but be careful although his next year a
5:13regulated industry and has been for some time
5:16catch number one it’s not covered by the FDA’s compensation scheme rules
5:22alright your money may not be put to work immediately sometimes you take your
5:27money and sit on it for a while
5:29thirdly if the p2p lending goes bust you are still responsible for the underlying
5:34loans are still exposed and you may not get your money back and forth Lee is a
5:38fast growing new sector so trade with some cash look under the bonnet do your
5:44homework before investing now I mean by that
5:50well what I mean is this if someone comes to you in a bit of a lender said
5:53give us your money you can lend it to find he is and will give you a sense
5:58that sounds pretty attractive in the current interest rate environment
6:01watch out there are no free lunches and investing and this is no exception
6:05you need to do a bit of digging around look at what is in that pool in other
6:10words are you making a mixture of good lines ok loans and risky loans to
6:16borrowers have high and middle and low quality is the danger is it you come in
6:21looking like right some of those risky loans get into trouble in default and
6:26suddenly you’re returns and even your original capital could be under threat
6:30so look under the bonnet
6:32take a look before you leap message there now
6:37ground on what is paid to pay and the pros and cons is an exciting new area
6:41any questions to the usual place I’ll be happy
6:44try and deal with them for you

pros and cons of peer to peer investing

 

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