What Is Peer-To-Peer Lending?
A peer-to-peer or P2P Lending is a personal loan made between you and a borrower, facilitated through any third-party intermediaries but not involving any bank.
Peer-to-peer loans are commonly personal loans or small business loans. It is also called person-to-person lending and the parties that make P2P loans are called peer-to-peer lenders or marketplace lenders.
This is how P2P Lending Works
How To Make Money From Peer-To- Peer Lending
1. Firstly, you have to Sign up as a Lender by providing your personal information such as your name, address, birth date, phone number, email address, payment methods with Lending or borrowing platforms.
Some of the most popular ones are Prosper, LendingClub, if you are in the US; Lending Works, Zopa, FundingCircle if you are in the UK; SocietyOne, MoneyPlace if in Australia; AuxMoney in Germany; CreditGate24 in Switzerland: YounitedCredit in France; Lendbox, EarnWealth, Faircent in India.
These are just a few, there are many lending platforms in which you can invest your money.
2. The borrowers are matched directly with investors through a lending platform. The investors choose and decide the borrowers they want to fund and how much amount to fund.
These Lending Platforms take an origination fee of 1%-5% of the loan amount to cover their service fee and the Lenders will take the interest accrued on the loan given. The fee is due when the actual interest is received only.
3. After you accepted the proposal, an agreement that mentioned the terms and conditions, calculation of the loan, and schedule of repayment are made. On receiving the signed agreements, the loan amount is disbursed in the borrower’s verified bank account number.
If the lending platform provides an e-signing option, it is more preferable by the borrower because it saves time and unnecessary paper works. Every detail is mailed back to the lender and borrower’s email ID provided at the time of registration.
For example: If a Lending Platform takes a 2% fee of each payment amount, and a borrower makes a payment of $400 on a loan, then the Lending Platform will take $8.
Different Marketplace Lenders have different criteria for accepting lenders and borrowers.
You can check them out from their respective websites.
How Do You Earn From P2P Lending?
Lending directly to a borrower rather than going through the bank gives you much higher returns. While a bank will give you roughly 8-11% returns on your investments per year, P2P Lending will give you an average return of 16-20% a year. Your earnings depend solely on what percentage of interest (and any late payment fee) you lend your money to the borrower.
Advantages Of P2P Lending
Here are the advantages of peer-to-peer lending :
- It gives you a higher return than conventional banks or CD accounts.
- Transparency features of the lending platforms.
- It provides you with an alternate stream of income sources.
- You can invest even a small amount of capital.
- You can diversify the loan amount you want to give to different borrowers according to their portfolios to minimize the risk.
- Hassle-free as the services are mostly provided by your lending platform.
Disadvantages Of P2P Lending
Firstly, you should bear in mind that every form of investment carries some kind of risk for the investors.
Here are the disadvantages of peer-to-peer lending :
- As it is an unsecured loan, you face the risk of losing your money in case the borrowers defaulted.
- Less liquidity than stocks or bonds because of the short term.
- Some platforms are available to accredited investors only – Individuals with the minimum personal income with a set amount of money which depends on the terms and conditions of the Lending Platform.
Conclusion On How To Make Money From P2P Lending
Peer-to-peer lending has risk but considering the high ROI it gives in comparison with traditional banks, it is worth a try!
If you have the necessary capital but do not have the time, interest, or skill or you don’t want to invest time and energy in starting or running your own business, this might be for you.
All you have to do is lending your money to the borrowers of your choice, preferably somebody you feel trustable from the lending platform profile.
It will not make you rich quickly, however, the accumulation of interest amount you received will pad your bank account balance sufficiently well.
I have seen many people doing this besides their other business and it made them a good profit.
Remember to analyze the data of the borrowers properly before accepting the proposals.
Your money won’t get lost possibly because these Lending platforms employ agents for tracing and collecting the payments by any means from the borrowers in case they defaulted.
If you are in India, here are genuine loan apps from where you can apply for an instant loan and get the money credited to your bank account within a few minutes. And the best part is you can apply on multiple platforms at the same time.
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MLian’s passion for writing is to help you understand that ‘All That Glitters Is Not Gold’. Her mission is to show you Practical and Actionable Ways To Earn Money online and offline to save your time and money – that you won’t get “SCAMMED” into buying something that promises Big but really doesn’t profit anyone except the owners.