Why Invest in Consumer Loans (And 5 Reasons To Include Them In Your Investment Strategy)
Consumer loans are the most popular type of investment in the P2P lending industry.
Considered the bread and butter of P2P investing, they offer the highest returns for the least amount of initial effort or commitment.
What are the different types of consumer loans? And why choose consumer loans over property or business loans?
Let’s find out.
What are consumer loans?
Consumer loans are loans that are only issued to individuals.
They are also sometimes called personal loans, and are therefore, different to other loans that might be for a property or business.
There are two main types of consumer loans: unsecured and secured.
Here are the main differences between the two:
Unsecured consumer loans
Unsecured consumer loans are peer to peer loans that don’t involve collateral — collateral being assets that can be repossessed if a borrower does not pay back, such as a car or business. Usually, these loans are only issued to individuals with good credit scores.
These types of loans are riskier, so the interest rates are higher and loan originators can make returns of over 200%.
These leftover funds can then be used to protect investors through a buyback scheme.
Loans are riskier, which is why returns are high and often more than 11% per year.
At Swaper, returns are 14%, and 16% with a bonus — you rarely get that with any asset class.
Secured loans
Secured loans are personal loans with collateral. In this case the borrower will set their property, car or house against the loan. This means it’s a lot more likely for the borrower to pay back because there is high motivation to make sure their assets don’t get repossessed.
Secured loans are also a popular P2P asset class, but usually returns are a little lower since they aren’t as risky. Returns are usually around 8%.
5 Benefits of consumer loans
Why invest in consumer loans and not other types of loans such as property or business?
Here are a few reasons:
1. High liquidity
Consumer loans are usually quite short — in Swaper’s case, 30 days long. This does depend on the P2P platform, but short-term loans mean that you can receive your interest every month.
Since you’re getting your returns once per month, liquidity is higher and you can actually make a decent monthly income off P2P lending.
2. High returns
There are very few assets that offer returns of 12%+ consistently every month (and don’t leave you awake at night due to volatility!).
By investing in consumer loans, you can enjoy higher than average returns consistently every month, and finally hit those goals of yours — whether you’re saving for something specific, or just wanting to retire early!
3. Easy to diversify
Consumer loans are the most popular P2P asset classes, which means you’ll always have many different loans to choose from. With Swaper, you can fund loans from two different countries, choose the loan term and decide whether you want to include delayed or extended loans.
The wide set of criteria and number of consumer loans makes it a lot easier to diversify than with other asset classes. Not only that, but many P2P platforms — including Swaper — offer buyback schemes which protects you even more if a borrower defaults.
4. Easy to begin
When compared with cryptocurrencies or stocks, it’s easy to see why consumer loans are easy to get started with: you don’t need to do research, handpick the loans yourself or set up multiple accounts with various brokers.
With P2P platforms you’ll see that most loans are handled by a loan originator. That makes it easy to get started, since all you need to do is add your funds, set up Auto-Invest and the platform invests the funds for you.
That’s not always the case for business or property loans where you might want to do some research.
5. High demand
Finally, those who invest in consumer loans can be at peace with the fact that there will always be demand for consumer loans. The peer to peer industry has existed since money came into existence and even back then, people needed cash for everyday activities.
People will always want to take out loans, which means it’s an asset class that will never disappear. You don’t have to worry about high volatility, and can expect stable returns every month, and even every year.
Conclusion
Consumer loans are one of the most popular peer to peer loans.
They are easy to invest in, offer great returns and liquidity is high. By using a legitimate peer to peer platform like Swaper, you can get started with consumer loans and finally start earning a decent return on your savings!
Create an account below and start investing with Swaper today!