Peer-to-peer (P2P) lending is not a new concept, existing for more than 13 years and during that time, it also managed to survive one financial crisis. Why is P2P Lending Bad?
Correlation to the Stock Market
During the crisis, P2P lending was in its infancy and also a lot of investors have repeatedly reported suffering losses during that time of period in action. In fact, it has already been proven that people stop repaying loans after that they have lost their jobs or even when companies are going out of business.
If the market slowly gears up for a market correction, then a new crisis could emerge. It is still pretty much hard of a job to properly predict how this type of lending is going to hold in such conditions and also it also might perform significantly better than the actual facts of the stock market but it also has a high chance to crash. Technically P2P lending markets should probably be separated from the other stock markets but in fact, if the market is not well-performing then the ordinary people that are inside this market or in the reach of the circle are going to feel the effects also.
Giving loan to people who will not have alone otherwise
This is one of the very major reasons why P2P lending is deemed bad. It is seen rather often that people are many businesses that are looking into peer-to-peer lending for getting the proper amount of loans do not usually have the best credit score by themselves and also otherwise they would lean on to look into more traditional lenders that are available in their local source such as banks credit unions for investors.
They actually turn to choose peer to peer lending and that is just because the reason that it is going to offer them the lower rates rather than any other traditional association or established lenders willing to take the risks. This is more likely to happen that those who are actually looking for quick money without any records are considered as highly risky investments for the banks.
Business loans are even of worst terms in this regard of fact and as there is to be said that most of the time business that is trying to get a loan approved for itself already has established and it cannot get a loan from a bank due to the lack of proper criteria that the bank has to approve. While being a p2p lending you are going to be probably the last resort for them in order to get the amount of money that is needed for them to be passed as a loan. The first two basic ways are going to reject them from any type of family or payday loans but a person really not pleasant and another one is basically shooting yourself in the leg for easy money and just you should not forget the fact that there is also an existing group of people who are going to turn to peer-to-peer loans just the reason because of that to payday loans in the past and now to refinance their debt.
Lack of information about the loan taker
This fact actually depends on which p2p platform that you are using as your choice and there are also some platform that is offering a lot of information about the loan taker. It can be easily seen what type of loan the loanee already has. For instance the total amount of income and spending ratio and also the household income or even they are housing status for mental and education everything you could get in one workspace and also total work time. But it is less likely that you are going to have the proper credit score and also reputation behind that person who is taking loan from you and this could cause you a lot of risks and also if you are being betrayed then you are going to face a serious amount of crisis towards your own financial situation rather than solving another one.
Unclear future results
As already said at the beginning of this article the basic concept of peer to peer lending is comparatively new in the financial market and that is exactly why before anything else the person starting to argue about there is not enough data to predict the future this is not actually all about that. With the properly provided information that has been done with the borrower if there is any type of unclear factors if the loan will get repaid. And also with some certainty every platform has some own risk evaluation system but even considering them it is still cannot be properly said or recommended that any type of properly organized level loan will be repaired with a hundred percent surety and also to be added to the fact that the stock market is also hard to predict in this circumstances and the real estate market can also have the sufficient amount of probability to crash into a crisis situation. With the procedures of p2p lending, there is a sufficient amount of chance that you would have to be said overtime to lose all of your total investments into this market and continue easily into a bankrupt person and this is only one of the few reasons why p2p lending is bad.
Conclusion
If you already have the basic amount of idea of the financial market and all the procedures of getting a loan processed or approved then you probably know a lot of ideas and a lot of places where you can invest your money with a comparatively higher chances off percentage for getting your benefit rather than you should invest in p2p lending.