I’ve been discussing the concept of Peer-to-Peer (P2P) lending for some time. In my perspective, it’s an excellent alternative to traditional banking and less favorable investment methods, giving you total control over a digital platform. However, understandably, some people have reservations about this medium. Given its novelty and lack of widespread understanding, such concerns are valid. In the spirit of transparency, I’ve outlined some potential security risks you may encounter while exploring P2P lending.
WORRY #1: SUDDEN DISCONTINUATION OF THE PLATFORM
Imagine a situation where significant players in the industry, such as Prosper or LendingClub, abruptly close operations. The thought of scrambling to recover from hundreds of in-progress loans can be daunting, especially for heavy investors. Fortunately, these platforms have foreseen this risk, implementing protective measures as standby strategies for unexpected future troubles. Take LendingClub, for instance, they have a standing agreement with a huge, well-established debt collection agency, Portfolio Financial Servicing Co. This company will step in to recover outstanding loans should LendingClub abruptly cease operations. While not perfect, it delivers a sense of security knowing there’s a fallback strategy in place.
WORRY #2: NO GOVERNMENT GUARANTEES
Savings accounts are usually protected by FDIC insurance. Thus, if a bank fails, your money has insurance coverage. In the case of P2P loans, this level of safeguard is absent. Here, investors (P2P lenders) choose their risk level based on the interest rates of low- to high-risk borrowers on their chosen platform. Given this dynamic, the U.S. government treats P2P lending as a legal investment, meaning it doesn’t protect against the default of your borrower. The lack of FDIC coverage implies using the platform without the traditional safety measures.
WORRY #3: ONLINE SECURITY
For anyone engaging in online financial activities, this is an issue of concern, especially when using an online lending platform. All your information resides in the platform’s database, ahead of any physical banking premises. Therefore, it’s essential to remain cautious and employ secure financial practices online, like creating difficult passwords and updating them regularly. Keep your antivirus software up-to-date, run frequent virus checks and avoid sharing sensitive personal financial information.
While P2P investing carries some risks, in my view, these aren’t significantly different from those found in other current investment options. On balance, I find the stock market more concerning than P2P lending at present.
What’s your perspective on this?
