Difference Between Bond and Consumer Lending Investment

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If you are looking for a lucrative investment strategy, many investment experts will suggest the idea of high-yield corporate bonds. Corporate bonds and other types of investment solutions can be an excellent way that you can develop fairly secure investments that can help you gradually improve your portfolio over time. Consumer loans however are becoming a very popular new way that you can see growth in maturity and investment based off of a principal investment followed by interest payments when the loan is completed. If you are interested in the greatest amount of success from your investment, it’s important to consider these two great investment options. Here are some of the differences between investing in bonds and consumer lending:

Bonds

High yield bonds are generally only worthwhile if a person becomes heavily invested. High-yield corporate bonds in the United States can sometimes go up billions of dollars for the total portfolio of bonds that a company has in the market. A person will only generally get a small portion of this based off the percentage of the bonds that they are invested in. Most bonds can be fairly secure and there are even some covenants that can be used to prepay bonds by the maturity date. Even though these are unsecured investments they are regarded as fairly low risk as in most cases over a ten-year period, a person with a percentage of a bond stands to make a small return. Generally returns in high-risk bonds range from 6% up to 8% on average for a regular and fairly secure return rate.

Consumer lending

Online marketplace lending or consumer lending is becoming a very attractive avenue  for investors as a very popular method for investment in the United States.  Marketplace loans can start as low as $25 ranging into a few thousand dollars. The average is usually around $13,000 for a loan and this can pay out usually around a default rate of 6%-15% on a short-term loan. Loan amounts generally range between 36 to 60 months and this is a fraction of the amount of time for the same return that a person could get out of a bond. With significantly lower rates to buy in and offer a loan, it’s also possible to diversify with multiple clients and investments. The only drawback to consumer lending is that there is no guarantee that the borrower will pay back. This means that some form of vetting or research is bound to be required on the part of the investor to make sure that a consumer that they are lending to will indeed repay them and offer a return.

Marketplace lending represents a very attractive way to invest because it can be so much more accessible for investors. Although the concept is still relatively new there are even a number of longstanding investment professionals that are seeing the merits of this investment strategy.

Comparing the two

Ultimately if you are looking for base investment advice on the idea of consumer lending versus high-yield bonds, the comparison between credit card loan rates and their stability versus high-yield investments showcases greater returns over time. Credit card loan rates continue to be stable whereas high-yield bonds will continually fluctuate over time. While there is a chance that a high-yield bond can occasionally outperform credit card loan rates, the ongoing investments will help you to continually make money even when the occasional debtor defaults on a loan. Credit card interest rates represent a consistent yield ranging around 12% in a study completed by St. Louis Fed and Yahoo! Finance. Rapid fluctuations in other areas such as the S&P exchange traded fund returns and high-yield bonds simply make them an investment that cannot produce the same consistent short-term returns which can lead to greater profits for investors. While most investors would consider marketplace and credit card loans as a risky investment, with this data in mind it is actually one of the most stable solutions for investing right now.

Marketplace online lending represents a much more stable and diversified vision of investment. Through the attractive returns and the lower investment threshold vs bonds there is simply a greater amount of investment return over time.

If you are willing to give a new style of investment a try there are some very encouraging figures surrounding the idea of consumer loans as an investment strategy over high-yield bonds. With long-term studies and numbers suggesting that this is a strategy that offers ongoing and stable profits especially with current trends and finances in the United States market.

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