Probably no one will question the claim that classic savings deposits such as savings accounts or fixed deposits belong to a dying breed. At least in the current low-interest-rate environment. In the search for alternatives, private investors with passive income goals are increasingly coming into contact with the term P2P loans.

What exactly is behind it and is this a real alternative to stocks, ETFs and Co.? Or are these P2P loans just a short-term fashion show and an attempt to rival the established banking scene?

Exactly these questions will be explored in this personal finance blog, and P2P credits as an investment for private investors will be presented in more detail.

In particular, investors who have never or only very vaguely come into contact with the term will be amazed how lucrative this form of investment can be.

What Are P2P Loans Anyway?

P2P loans are private loans that are granted without the intervention of banks. A private person lends money to another private person.

A simple example: Max has personal goals which one is to buy a car but does not want to wait for bank approval. For this reason, Max contacted a so-called loan lender. So a private company that lends and then makes these loans available to private investors on various portals.

Before this, however, the lender carries out a credit check similar to that of a bank. Since Max has a very good credit rating, he receives his loan within a few days paid by the loan lender and can buy his new car.

The lender, on the other hand, splits the loan into many small parts and, as already mentioned, offers them to private investors on a P2P platform.

The loan lender has the advantage that he can immediately recover the amount spent on Max and make new investments.

Max, in turn, is happy about a quick loan without many hurdles. And the third profiteer in the league: the private investor is happy about a double-digit annual return.

Simple and understandable, right? Although the different P2P platforms are partially different in terms of funding, credit check or structure, the basic functionality is always the same.

Benefits of P2P loans

Quick Entry Possible

P2P loans are not very complex, the investment process is usually self-explanatory and easy to understand. A clear advantage overstocks. For those who start investing in stocks without previous knowledge and continuous training, quickly shipwreck.

High Level Of Transparency

P2P loans are incredibly transparent. Granted, some platforms put more effort into this than others. All in all, however, every retail investor has the opportunity to get detailed information about the borrower, the type of loan and the exact financing plan.

No one has to “invest in the blue” but can put together an investment portfolio that fits in exactly with its goals and risk ideas.

Complete Automation Possible

Many P2P platforms offer so-called portfolio builders. These portfolio builders can be configured according to various criteria, which then fully automatically invest in new P2P loans.

There is an incredible number of individual settings options so that a perfect adaptation to your investment strategy is also possible here.

Since the portfolio builders automatically reinvest repayments and interest after configuration by the investor, it means for the investor: sit back and watch the money while working.

So P2P Lending or ETF?

Granted, investing in P2P loans is far from being comparable to the complexity of the stock market. Nevertheless, one should not make the mistake of becoming careless.

Investment always requires a plan, structure and thoughtful approach. At least if you want to operate this successfully in the long term.

Consequently, even with P2P loans, one should not blindly invest according to the motto “will work out” but stick to the rules of this passive income blog which is steadily rolled out.

Paul Petersen