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The important trend of peer-to-peer investment sites

Even investment funds are taking note of the benefits of peer-to-peer investment networks, and while they come with risk, they can be rewarding.



Growing trend: peer-to-peer investment

We all remember our childhood days when a friend would ask if they could borrow some money – some of them may even still ask now. This type of lending is typical amongst friends and family members, but for investors, the standard has always been to lend through a financial intermediary such as a bank in order to stipulate payback rules, timelines and other necessary requirements. But now, an increasing number of investors are exploring peer-to-peer investment networks and permitting consumers to borrow directly from them in order to obtain generous returns.

This peer-to-peer lending process bypasses banks and puts investors and borrowers in direct contact with one another. Why the change? Returns on investments are not as strong as in years past, and many investors are looking for opportunities to receive the biggest gains possible on the money that they lend out.

Investment funds are taking notice

By lending directly to consumers, the individual investor gets to have a say in how much interest they want to charge or what length of time they want to receive payback and other, which gives them a greater amount of say so than is typically given by going through a bank. Investment funds are also taking notice of how lucrative of a market this can be and are throwing their hats into the peer-to-peer investment ring as well.

Companies like Prosper and Club Corp. are estimated to lend close to $2 billion this year, which is huge for borrowers who are looking for potential investors. Banks are inundated with loan application and some cannot even get to them all in a timely manner – Bank of America was actually sued for denying and dumping large volumes of loan applications because it could not deal with the number of incoming applications.

Risky, but potentially mutually beneficial

Peer-to-peer lending ultimately allows consumers to bypass some of the stricter rules that come with borrowing from a bank and allow them to converse directly with an individual investor that wants to invest in a high growth opportunity.

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There is still some liability for both parties involved – investors have to trust that consumers will obey the contract and terms set forth and consumers may need to consult legal advice before agreeing and signing to investment terms in order to forgo being bound to something that they don’t agree with – but numbers show that peer-to-peer lending is mutually beneficial and can be worth the risk of these cautions.

Destiny Bennett is a journalist who has earned double communications' degrees in Journalism and Public Relations, as well as a certification in Business from The University of Texas at Austin. She has written stories for AustinWoman Magazine as well as various University of Texas publications and enjoys the art of telling a story. Her interests include finance, technology, social media...and watching HGTV religiously.

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