I’ve been talking about Peer-to-Peer (P2P) lending for a while now, and I think it’s a great alternative to traditional banking and other less appealing investment methods. It offers you full control through a digital platform. However, I understand that some people are hesitant about using it. Given that it’s a relatively new concept and not widely understood yet, these concerns are valid. To be transparent, I’ve highlighted some potential security risks you might encounter when considering P2P lending.
**Worry #1: Sudden Shutdown of the Platform**
Picture a scenario where major players in the industry, like Prosper or LendingClub, suddenly stop their operations. The idea of dealing with multiple ongoing loans all at once can be overwhelming, especially for larger investors. Thankfully, these platforms have anticipated this risk and have set up protective measures. For example, LendingClub has an agreement with a large and well-established debt collection agency, Portfolio Financial Servicing Co., to step in and recover outstanding loans in case they suddenly go under. While not perfect, it does provide some peace of mind knowing there’s a backup plan.
**Worry #2: No Government Guarantees**
Unlike savings accounts that are insured by the FDIC, P2P loans don’t come with this level of protection. If a bank fails, your money is covered by insurance, but that’s not the case with P2P lending. As an investor (or P2P lender), you choose your risk level based on the interest rates of borrowers from low to high risk on your chosen platform. Since P2P lending is considered a legal investment by the U.S. government, it doesn’t offer protection if your borrower defaults. So, using P2P platforms lacks the traditional safety nets.
**Worry #3: Online Security**
This is a major concern for anyone doing financial activities online, especially when using a lending platform. All your information is stored in the platform’s database, rather than in a physical bank. It’s essential to be cautious and practice secure online financial habits. Make sure to create strong passwords and update them regularly. Keep your antivirus software up-to-date, perform frequent virus checks, and avoid sharing sensitive personal financial information online.
While P2P investing does come with some risks, I believe they aren’t much different from those found in other current investment options. To be honest, I find the stock market more concerning than P2P lending at the moment.
What do you think about it?