What's secured P2P Lending?
Put simply, P2P lending is a marketplace where investors lend money to people who have difficulties getting loans through traditional institutions. P2P platforms offer higher returns for investors, and an opportunity for borrowers to get a reasonably priced loan.
This type of marketplace emerged shortly after the 2008 crisis; banks weren’t willing to issue loans, so small businesses and individuals had to look elsewhere. With P2P lending, borrowers can jump through fewer hoops and have easier access to their money, while giving investors a better return on their investment.
In this article, we’ll be covering what P2P lending is, why secured P2P lending may be a better option and how to get started with HomeCrowd as an investor.
A P2P marketplace basically turns the investor into a mini-bank. As an investor, you invest money into the platform, and someone uses it as a loan. That person will then repay you over a certain period of time, with returns reaching 18% per annum.
Who are the people borrowing the money? The type of borrowers depend on the marketplace. Some P2P platforms are for companies that are trying to scale and grow their business. Others are for individuals who need a loan for personal reasons. Here at HomeCrowd, borrowers are borrowing money in order to buy a house. We’ll get into more detail below.
On some platforms, you can pick who you lend the money out to. On others, the platform pools in the money from several investors and then divides it between several borrowers.
Since there is no middleman and overheads other than the P2P platform, borrowers and lenders can benefit from better interest rates. This means borrowers can receive money at better rates, and investors can enjoy higher returns on their investments.
Investors can pick a risk profile that suits them best: the higher the risk, the higher the return on investment. They can usually pick several portfolios within the platform with different risks, and therefore diversify their investments accordingly.
The main disadvantage with P2P lending is that it can be risky, and some investors may not see the return on their money if borrowers default on their loan. The worldwide pandemic in 2020 is proof: many P2P platforms have had to pause operations due to a delay in payments and certain moratoriums being applied to loans. In some cases, investors won’t see a return on their money for another 2 years.
However, there are some less risky options: secured P2P lending. Secured P2P lending offers lower risk investing with decent returns.
How does secured P2P lending work? Basically, the platform offers secured P2P loans using a house as a collateral. An investor sends their money to the platform, and the platform offers that money as a loan for an individual to buy a home - a mortgage. The loan platform then uses that house as a collateral. If the borrower defaults, the house can be foreclosed and the proceeds will be refunded to the lenders accordingly.
This significantly reduces the risk for lenders. The houses used as collateral are affordable housing, a market that is currently under-supplied. In the event of a default, housing will still be in high demand. This means that investors will not only get their money back, but also the interest. No matter what kind of crisis is happening throughout the world, people will always need a roof over their heads. Investing in someone’s home is one of the safest investments in the market.
Secured P2P lending offers a lower risk alternative to investors, and gives opportunities to first time home buyers that want to buy a house at a reasonable rate.
HomeCrowd offers collateralized P2P lending. This means that investors can invest their money into a marketplace with that money used to offer mortgages to buyers who want to buy a home. Our borrowers are individuals who work in the gig economy or on a freelance basis and who therefore may have difficulties getting a loan from a bank.
By investing in secured P2P lending through a platform like HomeCrowd, lenders are able to diversify their portfolio and earn higher returns. On top of that, they are able to offer borrowers an opportunity to buy a home at a reasonable interest rate.
How does it work? First of all, sign up to HomeCrowd and create an account. Then, browse all the different offerings and view our entire portfolio of property backed home loans. You’ll be able to choose the loan portfolio that you want to invest in, and you’ll have the chance to start with as little as RM500. That money will then be used as a loan for first-time buyers who need a mortgage. By investing in HomeCrowd, you are literally investing in a millennial in Malaysia, and giving them an opportunity that many others can’t.
Before, only banks and larger institutions could invest in consumer credit and help individuals buy homes. Now with marketplaces such as HomeCrowd, investors gain access to a new asset class with higher returns. Not only that, but they are investing in the millennial generation by giving them the opportunity to buy a home.
Want to get started? Open an account with HomeCrowd now!
8 May 2020 | By HomeCrowd team