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

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

 

pros and cons of peer to peer investing P2P Lending Platforms Chart
pros and cons of peer to peer investing