Understand the P2P Lingo
You will see P2P platforms using the words “interest“, “rate” and “yield“. Sometimes they seem to be used interchangeable. If you aren’t native English speaking, it can be slightly confusing.
The main difference between rate and yield is that they are commonly associated with different financial instruments.
Yield is commonly used when we talk about the return an investor receives from a security like a stock or a bond. Most of us probably prefer to use the word “dividend”, referring to the actual amount of money received. If a stock price is 100 Euro and the yearly dividend is 4 Euro, then the yield is 4%. The yield is quoted as a percentage rather than actual money amount.
An Interest Rate
We generally use rate or interest rate when we talk about what a borrower pays a lender for a loan. If you borrow 10 000 from your bank, the bank will charge you an interest rate on your loan. Interest rate is also what you get (if you are lucky) when you deposit your savings with the bank.
Type of P2P Investments
With different types of P2P Investments, your platform often express the return on your investment as either yield or rate.
At the end of the day, the difference between rate and yield doesn’t matter much. They both tell you how much money you should expect in return for your investment.