It is not only for earning higher returns that millennial now are turning moneylenders. There are more to it. A closer study and look at the money market along with a few theoretical examples will enable you to know these reasons.
Apart from the high return factor, the reason for people turning moneylenders is the need to expand their investment portfolio. As the most effective and productive call to action, steering away from the most common and traditional options such as real estate, precious metal and equities and focusing on money lending rather seem to be a feasible and prudent option.
Know how it works
Even if you do not need the money, it will pay off better if you are knowledgeable about how it works exactly.
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It starts with creating an investor profile, and the stringent process will do the rest that all borrowers will have to undergo. Soon you will be able to reap the benefits and be a part of the growing tribe of young professional lenders.
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Following the P2P lending model, you will be happy with the rate of return and have a more improved lock-in period which is usually very long as in case of any traditional investment option.
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If you have not experienced any good asset class till now, this lending model will offer you quick, easy and more returns month after month.
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The fact that the entire process can be done online has added more functionality and has made it more popular. You can start with a low amount initially and raise it gradually once you gain confidence.
As a lender, you can select a high, medium or a low-risk borrower as per your wish. Depending on the amount lent and to whom, you have a fair chance to make anywhere between 14 and 30% each year on your entire investment.
The stringent requirements
There are different criteria to choose a borrower and in most cases these requirements and stringent and comprehensive. This reduces the risk of lending and along with that ensures that you will get back the amount lent on time along with the profit which is in the form of interest on the loan. The list of requirements as you will find in https://www.libertylending.com/ or any other money lending site will usually include:
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An application with proper documents attached as a proof age and residence
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Six months’ bank statement
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Credit score
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Salary slip or any other income documents and
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Tax statements.
All these documents will enable you to sort different borrowers according to individual risk categories using your filters if any to the mix. These filters and parameters for risk categorization may include the credit history of the borrower, stability of the job, permanency of the residence address provided and others.
Reasons for such shift
As for the reasons for such a paradigm shift of millennial it can be cited that people especially the young generation is an early adopter of this sharing economy. They also tend to have a slight aversion to larger corporate houses which is another significant reason that this model seems to be more attractive to them.
Moreover, the advancement and use of technology have also provided them with a sense of confidence in such a lending practice. Almost all P2P lending platforms make the best use of and rely heavily on social media. This enables them to extend their outreach to this specific type of lender profile.
In most of the times, a simple online search for investment options will help a borrower or investor to find such platforms. With an offer and assurance of principal protection option for the investors, it makes it easier, faster and more reliable for the first-timers to start lending through this network.
End of the monopoly
You will come across a host of lenders who is salaried professionals looking for other avenues to make additional investments and earn more money. Apart from that, you will also find a big bunch of businessmen mostly under the age of 30 who are actively involved in this type of lending through such a network.
In short, modern money lending business is not just restricted to traditional money lenders any more reducing their monopoly over the money market. It is all due to the more structured and professional way of money lending business that has resulted in such a shift and improved the entire money market.
Other reasons summarized
There are also several other reasons apart from high and guaranteed returns for such shift that can be summarized as below:
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The liquidity ensured with the monthly returns
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Ability to spread the capital across various platforms once you are comfortable with the concept
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Power to diversify the risk to a specific limit
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Smaller average ticket size and
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Larger volume of investible surplus.
This has attracted one and all. Ideally, if you go by the statistics of different surveys and researches, 35% of the lenders are young, but when you extend the age group a bit, you will find that the number of lenders using this platform is as high as 70%. As for the borrowers too, the number of younger people is much higher than the old and orthodox.
Principles for lending
However, you cannot take out the risk factor when you lend money to anyone, no matter how simple and enticing the concept may look like. Know the facts to overcome the fear and follow the principles of lending money to your friend, family or any borrower.
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Lend money only to those who need it. This will ensure that the borrowed money will be valued and put to good use.
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Make sure that you clear out your expectation while you lend money by being specific about your terms, conditions, and rate of interest.
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Be careful about how you lend, how much you lend and how you expect it to be repaid. Always follow caution and keep everything well documented, digitally or otherwise.
All these tips and knowledge will make you a successful lender just like many out there.
