Here’s Why Millennials Are the Largest Group On P2P Lending Platforms
Written by
Martin Dasko
Edited by
Joe Evans
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If you’ve been looking for investment options for your money, you’ve likely encountered P2P platforms at some point. With reports that the peer-to-peer lending market could hit over $21 billion by 2030, there’s a reason that many young people have turned to this option for borrowing money or lending funds out.
Studies from a few years ago indicated that millennials were the most likely to use P2P platforms, with 67% of the lenders being millennials under the age of 35 at the time. These lending channels are useful to borrowers and investors.
Why do younger generations use P2P lending platforms? What’s attracting millennials and younger generations to them as lenders and borrowers?
1. Lower Barrier to Entry For Borrowing Money
Millennials have realized they may not always get approved for a bank loan or find the best investment vehicles at their local branch. With a traditional lender, you may have to go through paperwork and get rejected based on your credit score when you apply for a personal loan. With P2P lending, you can get approved for a loan more easily since you’re borrowing from another person.
“You generally need strong credit to get loans through traditional lenders and peer-to-peer (P2P) lending platforms tend to have lower credit score requirements,” said Todd Stearn, founder and CEO of The Money Manual. “The average credit scores for younger generations, including millennials, are below the national average. So these younger consumers are more likely to qualify for loans with P2P platforms. And even those who can qualify for a traditional loan are more likely to get a lower rate with a P2P platform.”
The lower barrier to entry has attracted those looking for a personal loan to make home repairs or consolidate their debt since they may find better luck through these platforms.
2. Millennials Grew Up With Technology
While the idea of online banking or investing through digital tools may seem stranger to older people, younger generations have grown up with technology and are comfortable with online transactions.
“Younger generations also grew up with the internet and related technology as a large part of their everyday world,” Stearn noted. “Older generations tend to feel more comfortable handling their finances in the more traditional ways that they always have. According to Statista, nearly 78% of millennials are taking advantage of digital banking. So, it stands to reason that a more tech-enabled lending model would appeal more to younger generations.”
3. Millennials Have Already Been Using P2P Tools
According to a survey conducted by LendingTree, 84% of consumers have used a P2P payment service. RightMetric shared that over 83% of Venmo users were 18- to 34-year-olds.
While a service like Venmo is commonly used to split bills, younger people have become accustomed to making such transactions with each other. These P2P platforms give young people another opportunity to cut out the middle person as they work out financial transactions with each other.
4. Transparent Investing
These P2P platforms make investing transparent by sharing details about the loan terms, what the money will be used for, and the user’s profile. Investors can examine the borrower’s profile in detail to evaluate whether the risk is worth taking.
Millennials prefer to personally connect with whom they’re lending money. There’s also a sense of community that you won’t find with other investments.
5. Too Much Volatility in The Stock Market
Young people have seen the stock market’s volatility over the last few years due to the constant fluctuations caused by overall market sentiment and rate hikes. Those looking to build an investment portfolio with decent returns may turn to alternative options because they’re frustrated with the fluctuations.
Even though there are risks with investing in a P2P platform, young people want to know what they’re signing up for when they invest.
6. P2P Lending Platforms Provide Unique Investments
When you’re a lender on a P2P platform, you can find unique investments that you won’t find anywhere else. For example, while your local bank may only have a CD or high-yield savings account, you can invest your funds in a business idea you believe in through P2P lending.
Younger investors who are looking for alternative investments may turn to P2P lending since there are opportunities available that won’t be found anywhere else.
7. Burned By Crypto
Tech-savvy young people have likely dabbled in cryptocurrency investments, which have left many burned.
For example, when the Luna cryptocurrency network collapsed a few years ago, it was estimated that $60 billion was lost in the space, and many investors admitted to losing their life savings. Those fed up with losing money to cryptocurrency investments may want to turn to P2P platforms for investment opportunities.
Closing Thoughts
While P2P lending has its benefits, look into the risks associated with this option. Since this investment relies on unsecured individual loans, you want to ensure you know what you’re getting into.
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