Home Investing Micro Loan Investment : Benefits, Its Definition and Risks
- Investing
By
Kunle
-
The year 2020 made a certain truth stark clear; and that truth is, you need an alternative means of sustenance. And that is Micro Loan Investment.
The pandemic led to a colossal decline in the world’s economy. A lot of people lost their jobs and businesses.
People no longer feel working in a physical space means they have a secure job. Perhaps that’s the reason why the search for online or remote jobs seems to be at its peak.
Granted, online jobs can be lucrative but micro loan investment is also another way to make money.
I know right, those words sound alien or complex. But don’t feel intimidated, this article will give a breakdown of its meaning.
Also, it will highlight its benefits and risks.
Micro Loan Investment : Its Definition
To make it definition of easy to understand, let’s first understand what a microloan is.
Micro means something that is very small and loan means money lent to someone or a business with the intention of receiving it back with interest.
With the definition of both words in mind, we can deduce the meaning of micro loan. A micro loan is a small amount of money given to a person or business with the intention of receiving it back with interest.
Microloans can be as high as $50,000 and they are mainly given to entrepreneurs who have trouble raising capital for their establishments.
To invest means, lending out money or asset to someone or a business with the goal of making profits.
Since we now understand the meaning of micro, loan, and investment, I think it should be much easier to grasp.
It simply means lending out money to entrepreneurs, small business owners,s or people without business capital with the goal of making profits.
Even though they originated in developing countries, they’re now becoming globally popular.
It is a very quick way to earn money because it’s a short-duration loan.
Money can be lent to a person or business for as long as five months but some lend money for as long as five to six years. Well, it all depends on the agreement made before the money was lent.
The internet has also made it very accessible to the masses. There are lots of micro loan websites and anyone can create them.
Its Benefits and Risks of micro loan Investment
Itt can be a very risky game. That’s why it’s very important to get your facts about an entrepreneur or business straight.
No investment is completely free from risk so, you must always be on guard.
The best way to know if this investment will be beneficial for you will be to examine its benefits and risks.
Its Benefits
Some of its benefits are:
- Payment of loan with Interest
- Consistent returns
- Increased liquidity
- Less investment amounts
Payment of loan with Interest
Micro loan investors eventually get back the money they loaned. But there’s an extra catch, they also receive an interest payment. Payments are usually due at the end of every month or as upon the agreed date for payment.
Also, you have the option of also reinvesting payments and interests.
Consistent returns
Due to the digital and automated systems, micro loan investment companies now have the ability to develop algorithms that help control investment rates. This in turn guarantees the constancy and security of people’s investments.
Increased liquidity
Remember what I earlier said about micro loans only lasting for about a month or more depending on the contract made? This tells you that your investments are only for a short period of time.
This high liquidity rate possessed by your investment portfolio means that should the time come when you decide to withdraw all that you’ve invested, you have the liberty to do that, within a short period of time. It could be within some days or weeks.
Fewer investment amounts
A blend of all the benefits listed above allows a person to advance microloan investments with amounts that are as low as $6.
Having the privilege of investing little amounts implies that you’ll have the option of variating your investment portfolio if you make the choice of advancing microloan investments.
Its Risks
Some risks of micro loan investment are:
- Unprotected loans
- Increased defaulting charge
Unprotected loans
Whenever you decide to advance micro loans using money or assets, you assist in funding the loans of customers that aren’t protected.
This implies that the loans being lent out do not have guarantors or properties for collaterals.
Having collaterals means that if a situation arises where the lender can’t pay back, the guarantor could pay on behalf of the lender. And if not, the properties can also be traded off to recover the money lent.
Lastly, if the lender should default in payment, it’s highly likely that the liability could be traded off to a collector of debts. And in such cases, you might not even get your money back.
Increased defaulting charge
Money that’s lent out for brief periods in many cases ends up with an increased defaulting charge.
The defaulting charge in payday loans is usually as high as 6%. The defaulting charge is also extremely reliant on the due assiduousness and the debt-retrieving ability of the company giving out the loan.
The default charge is also relative to the country where the person borrowing the loan is from.
For example, the defaulting charge in Kazakhstan and Denmark seems to be much more than the default charge in Sweden.
Final Words on
We realize that micro loans investmentsare generally seen as a contentious lending kind. If, on the other hand, you value increasedliquidity returns from your investment, there is presently no favorable financing kind of loanthat can meet your needs asides micro loan.
Private loans, housing loans, and even loans from companies do not give the same level of liquidity as micro-investment loans, and that is why many invest in microloans.
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