Peer to peer lending is often considered riskier than other forms of investment. Looking at peer to peer lending or crowdlending sites they state the risk of investment is at your own risk and if you do not want to lose your money don't invest.
This is indicated in the prospectus with the SEC, which is the worst scenario for investors. This confession is often enough to scare most people. So why is a peer to peer lending so risky and if so risky why people are ready?
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The overall risk is based on the nature of the loan issued. There is no guarantee. Meaning, he has no real collateral supporting the loan like a car loan or mortgage. There is a promise to pay the loan by the borrower. This is not the only type of unsecured loan today.
Every credit card and store credit is an unsecured loan. These loans or lines of credit carry a high-interest rate due to the fact they are not guaranteed. The same is true of peer to peer lending.
How is a peer to peer lending different than a credit card? It's period to repay the loan or at maturity. Loans are usually more than three years. The borrower pays installments and no minimum. The goal is to completely pay the loan term.
So how risks are ready? They often carry the same risk as credit cards and other unsecured debt. The risk is always present non-payment or late payment, but many measures are taken by the lenders to reduce this risk.