logo
g Text Version
Beauty & Self
Books & Music
Career
Computers
Education
Family
Food & Wine
Health & Fitness
Hobbies & Crafts
Home & Garden
Money
News & Politics
Relationships
Religion & Spirituality
Sports
Travel & Culture
TV & Movies

dailyclick
Bored? Games!
Nutrition
Postcards
Take a Quiz
Rate My Photo

new
European Travel
Action Movies
Bible Basics
Houseplants
Romance Movies
Creativity
Family Travel


dailyclick
All times in EST

Clairvoyance: 08:00 PM

Full Schedule
g
g Investing Site

BellaOnline's Investing Editor

g

P2P Lending Disadvantages


Peer-to-peer lending has become popular in this low interest rate economy. But with higher interest comes higher risks. Do you know the disadvantages of investing in P2P loans?

Risk of default. One of the main disadvantages is the risk of default on the loans. There are no guarantees that the borrower will repay you in full. The best way to offset this risk is to invest in a diversity of loans that are in the A and B ratings range.

Unsecured loans. This accompanies the risk of default. There is no collateral backing these loans. It is harder to collect if the borrower defaults. The websites that offer P2P loans do have collection services, but the risk of losing your money is still high.

Multiple loans. As stated above, to offset default risk, it is necessary to spread risk over many loans. This can become inconvenient to keep track of and manage all your loans.

Lock in money. Loans are often issued for three to five years. This locks up your money. You lose access to the money during this time. You will be receiving payments each month. But if you need the bulk of your money for an expense, you will have to sell it on the trading platform.

Trading platform fees. The trading platform is where you can sell your loan to fellow peers. You incur fees to trade. Whether there is a fellow lender willing to buy your loan is another question.

Loan fees. The websites who administer the P2P loans charge a fee to for this service. They will state their fee and provide information on how this alters your potential return.

P2P sites’ health. You have to trust that the P2P website that you are doing business with will stay in business. There are supposed to be backup servicers who will take over if a site goes out of business. Information on this is available on the P2P websites.

Miss out on rising interest. There is the risk in a low interest rate economy that rates will start to rise. You run the risk of missing out on higher and safer rates while your money is locked in these loans.

Availability. Loans are not available in all states. Kansas, Maryland, Ohio, Oregon, and Vermont are a few states that do not allow their residents to invest in P2P loans. Check on each lending site or with your state government to find out if your state allows P2P lending.

Taxes. P2p loans are taxed as ordinary income. You will want to factor in the cost of taxes when considering these loans.


Are you interested in a simple portfolio to save for retirement? Please check out my book on building a simple retirement portfolio that is available at Amazon.com:
Investing $10K in 2014 (Sandra's Investing Basics)

Add P2P+Lending+Disadvantages to Twitter Add P2P+Lending+Disadvantages to Facebook Add P2P+Lending+Disadvantages to MySpace Add P2P+Lending+Disadvantages to Del.icio.us Digg P2P+Lending+Disadvantages Add P2P+Lending+Disadvantages to Yahoo My Web Add P2P+Lending+Disadvantages to Google Bookmarks Add P2P+Lending+Disadvantages to Stumbleupon Add P2P+Lending+Disadvantages to Reddit



 



What is P2P Lending?
P2P Lending Advantages
Alternative Investments for the Small Investor
RSS
Related Articles
Editor's Picks Articles
Top Ten Articles
Previous Features
Site Map




For FREE email updates, subscribe to the Investing Newsletter


Past Issues


print
Printer Friendly
bookmark
Bookmark
tell friend
Tell a Friend
forum
Forum
email
Email Editor


Content copyright © 2014 by Sandra Baublitz. All rights reserved.
This content was written by Sandra Baublitz. If you wish to use this content in any manner, you need written permission. Contact Sandra Baublitz for details.

g


g features
Organize Your Finances

Multiple Streams of Income

Investing in Water

Archives | Site Map

forum
Forum
email
Contact

Past Issues
memberscenter


vote
Poetry
Daily
Weekly
Monthly
Less than Monthly



BellaOnline on Facebook
g


| About BellaOnline | Privacy Policy | Advertising | Become an Editor |
Website copyright © 2014 Minerva WebWorks LLC. All rights reserved.


BellaOnline Editor