Peer-to-peer lending is undoubtedly attractive for income seekers looking for better returns. Peer-to-peer borrowers allows investors to lend directly to real people, setting the time and interest rate for repayment.
Many of the lenders are unsatisfied savers, who can get better returns by lending. Because it is a relatively new industry, one can expect changes to lending practices and a lot of fine-tuning.
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Peer to Peer lending is not without its disadvantages as the lender has very little assurance that the borrower, who traditional financial intermediaries may have rejected due to a high likelihood of defaults, will repay their loan.
However, some P2P lenders minimize their investors risks by approving only the most creditworthy borrowers while others limit approval only to the top ten percent. Other P2P lenders even create a secondary market where loans are re-auctioned of an investor who happens to want to have his money back.
The investor may, aside from suggestion to loans, ask the P2P lender to spread his invested funds among several borrowers. They also have the option to choose which risk category they are willing to lend.
On average, investors of P2P lenders achieve an average return of 9.5% with some P2P lenders fixing the rate between 8.2% to 11.9%. Some investors can earn as high as twenty percent for the riskiest loan since they are free to set their rates in some P2P lending sites.