How to Invest in Peer-to-Peer Lending
Peer-to-peer lending offers private investing options, but comes with higher risk.
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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.
Create an account on a peer-to-peer lending website. Once the website verifies your account information, your lender status will be approved.
Step 2Deposit the amount you wish to lend. Most peer-to-peer websites require a minimum deposit of $25 to make a loan.
Step 3Find 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 4Decide 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 5Make loans and collect payments. Once you have loaned money on the website, borrowers make monthly payments that are deposited directly into your account.
References
Tips
- Read the borrowers' profiles carefully. Some borrowers may have had bad luck that lowered their credit rating. Other borrowers might be unwise or scammers.
Warnings
- 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.
Writer Bio
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.