P2P lending is one of the best investing platforms and is also used by millions to borrow money online, across the globe. It carries a moderate risk and has high returns than equity or FD investing.
Lenders who are new to it often make a number of mistakes, which may cause loss of money. You do not always need to learn by mistakes. Here are some of the biggest mistakes committed by lenders. Know them, and avoid them to get the best returns on your investment, while also lowering your risks.
1. Lack of Diversification in Portfolio
Lack of diversification is like putting all your eggs in the same basket. It is best to divide the portfolio and invest in a number of individual borrowers so that you suffer from the least of defaults. Invest no more than 0.5% of your money is any 1 borrower, to enjoy a better stability.
2. Investing At a Single Online Borrower
There are number of the online registered borrowers on P2P lending platform like LenDenClub where you can invest money. These are the list of verified borrowers who seek to borrow money online, as these online platforms are deemed to be the most reputed, and popular. On the contrary to what many people think, it is better and less risky, when you invest in different and multiple borrowers. Even if one borrower makes default, your investment remains secure.
3. Investing Only in Low-Risk Loans
Nobody wants to incur losses and suffer from defaults. That is why people mostly invest in loans in the low-risk band range. However, the returns of the low-risk investments are also quite low, and you will get returns @ of around 12-15%. If you create a balance portfolio and also invest in few high-risk loans, your interest will increase to around 15% to 18%. High risk investors do get returns beyond 35%.
4. Expecting Fast Payments
You may expect fast payments on all your investments, this would be a mistake as the P2P borrowers very often lag on the returns. So, always be ready to experience delayed repayments, when lending money on the P2P online platforms and websites.
5. Not Checking on the Online P2P Lending Platform
It is very important for the investor to choose a credible online lending platform for P2P investing. For instance, LenDenClub is one of the most reputed P2P lending platforms in India. There has never been a Legal Recovery situation on the website, as it screens both lenders and borrowers through the best of software and other measures. The company also has a “Lender Protection Fund” so that your investments are always secure.