Imagine if you could get rid of the bank and directly lend to those in need. You could potentially arrive at a rate like 13%, which is hugely beneficial to both lender and borrower.
The last couple of years have been tough for the Indian middle class. Economic slowdown coupled with ever rising inflation has squeezed the finances of every such household. The last couple of decades had witnessed a credit lead growth of the economy, where the availability of cheap credit helped fuel demand generation in the economy. Much of this demand generation was from the middle class which availed home loans, auto loans, personal loans, or relied on credit cards for pacing out their consumption needs.
One of the main reasons for the growing popularity of P2P lending in developed economies has been the rate of returns that investors have been earning. Here is a comparison of the rate of returns from the two major economies, UK and USA, which shows why P2P is gaining such popularity.
UK
In the UK, the top deposit rate for 6 months tenure is around 1.1% while that for a 2 year period is 1.6%. For 6 month fixed rate bonds, the returns are around 0.9-1.1%, while the same for a 2 year period is around 1.35-1.6%.
When you put money in a bank, you get an average return between 4-8% on your deposits and when the banks lend money it lends anything between 18-36%! In the entire process,
Even as global markets go shaky and experience volatility making many sweat; it is the Online Direct Lending zone of peer-to-peer finance that not only remains unfazed, but seems all set to offer some dramatically interesting, money-making opportunities even for those who do not have knowledge of the stock market.
Peer to peer lending has emerged at a time when the conventional financial system is undergoing a crisis across the world. One may call it a variant of crowdsourcing, P2P services are increasingly becoming popular in all countries where they have been introduced. Here are some reasons for its popularity and why you should also consider it:
In the US and UK, a recent popular trend is paying credit card dues via P2P borrowing. It may seem a bit odd for starters, as credit cards with their different offers seem to be the most lucrative credit offering. But swapping it to P2P makes lot of economic sense.
Peer-to-peer lending hit the headlines in early December when former Citigroup CEO Vikram Pandit invested in Orchard, a New York City-based startup that aims to create a secondary market for P2P loans.
