“Investment” can be defined as the commitment of resources to achieve later benefits. So simply, by investing, people can grow their wealth. Among many alternative investment methods, P2P Lending or simply Peer-to-Peer Lending and Crowdfunding have become trending topics. These investments can be made using different modes, such as money or any other property. Stocks and bonds are some of the famous and traditional investing methods. Investors tend to invest in primary and traditional investment methods. But with the change of time and the world, most investors have begun to search for alternative investing methods rather than sticking to traditional and primary investing methods.
In this article, we hope to discuss these two alternative investment methods and their benefits and potential risks.
1. Peer-to-Peer Lending
Peer-to-Peer Lending, or P2P Lending, is a popular alternative investment method. It enables individuals to obtain loans from other individuals. This procedure is happening without the involvement of a financial institution. With the advancements of modern technologies, some websites were created to support this P2P Lending process. Online methods like P2P Lending websites have increased the usability of this alternative investment method.
The lenders and borrowers are the two pirates in this P2P lending process. The P2P lending websites connect these two parties. Here this website is working just as an online bank. The P2P websites have different charges for the service that they provide. The lenders can open an account on the P2P website and deposit the money they can lend to another party. The borrowers can apply for loans on the platform. For that, they have to post their financial profile on the website. Then the borrowers will be able to view the offers of the lenders. After that, they can select the best offer for them. So, the website acts as an intermediate platform for money transferring, monthly payments, and interest calculations.
1.1 Advantages of P2P Lending.
It is a convenient method for both lenders and borrowers.
- Compared to a traditional loan process, P2P Lending services are quick.
- Most of the time, P2P loans have lower interest rates.
- Investors can earn higher returns on their investments.
- As these platforms connect lenders and borrowers directly, it increases the understanding of both parties, which helps to have a healthy financial relationship.
1.2 Disadvantages of P2P Lending.
- Default risks of the borrowers can be harmful to the investors.
- These platforms may not provide the best protections to investors compared to traditional investment methods.
- There can be problems with the availability of this investment method. All kinds of investors and borrowers may be unable to access this method.
The P2P lending website will charge fees and costs for its services. These charges can vary from website to website.
Crowdfunding is another alternative investment method which has become popular in past years. It is just like a fundraising project. Rather than collecting a large amount from one or a few resources, this method is simple and easy to handle. With the advancement of modern technologies, crowdfunding can be done via online platforms.
Online crowdfunding platforms allow fundraisers and the crowd to connect. The fundraisers can be different entrepreneurs, business people, and small and medium-sized companies. Then the crowd is their aimed group of people or their customers. Funders can launch different pledges and collect funds using a crowdfunding platform. These platforms will charge a service fee for offering the space or the fundraising campaigns.
There are different types of crowdfunding, reward-based crowdfunding, and donation-based crowdfunding are some of them.
2.1 Advantages of Crowdfunding
- This is an easier method to access a larger crowd. Especially for companies, this method is useful for finding new customers.
- Large and complex projects can be simply completed by addressing a larger crowd.
- You can ensure the validity of your project. Crowdfunding is like a reality check for many projects.
- You can identify the crowd around you by crowdfunding.
- It works as a marketing tool. Especially for businesses, they can promote their business through this method.
2.2 Disadvantages of Crowdfunding
- As mentioned earlier, crowdfunding is just like a reality check. You cannot guarantee whether you can achieve your goal or not.
- Since crowdfunding depends on the ideas and the crowd’s involvement, sometimes there can be reputational damage.
- There can be issues with the platform you are using for crowdfunding. E.g., Additional charges for the platforms.
Most people try to invest their money to gain later benefits. With time, people have understood the pitfalls of traditional investment methods. Because of that, people tend to try alternative investment methods. Peer to Peer Lending and Crowdfunding are the most common and effective alternative investment methods today. These methods are easier to handle and give effective results compared to traditional investment methods. It is good to identify each investment method’s processes, advantages and disadvantages before investing in them.