How to Invest in Peer-to-Peer Lending

Peer-to-peer lending is a more personal type of investment that allows smaller, private investors to give loans directly to consumers. The borrower has a lower interest rate, and the lender has a chance at getting a higher return. However, the loans are not secured by any collateral, so the risk is high.

Step 1

Create an account on a peer-to-peer lending website. Once the website verifies your account information, your lender status will be approved.

Step 2

Deposit the amount you wish to lend. Most peer-to-peer websites require a minimum deposit of $25 to make a loan.

Step 3

Find borrowers you want to lend money to by browsing profiles on the site. Profiles will include the amount requested, how the money will be used and the borrowers' credit history.

Step 4

Decide your risk tolerance and spread the risk. Borrowers with good credit will receive lower interest rates on their loans. Higher interest rates may bring greater risks.

Step 5

Make loans and collect payments. Once you have loaned money on the website, borrowers make monthly payments that are deposited directly into your account.

Items you will need

  • Peer-to-peer lending account

Tip

  • Read the borrowers' profiles carefully. Some borrowers may have had bad luck that lowered their credit rating. Other borrowers might be unwise or scammers.

Warning

  • Peer-to-peer lending is higher risk because the loans are not insured, and you cannot collect on a default. Spread your loans out so that you are not placing too much money and risk on one borrower.

Photo Credits

  • Photos.com/Photos.com/Getty Images

About the Author

With features published by media such as Business Week and Fox News, Stephanie Dube Dwilson is an accomplished writer with a law degree and a master's in science and technology journalism. She has written for law firms, public relations and marketing agencies, science and technology websites, and business magazines.

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