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How to make money with Peer-to-Peer lending

By Edited Nov 18, 2015 1 0

Peer-to-Peer lending is a new phenomenon sweeping the world, it allows investors and lenders to meet over the world-wide web on various websites. This means, if you are in need of a loan or if want to make extra money, this form of lending is the way to go. The beauty of peer-to-peer lending, is being able to choose your interest rates and the borrower.

Things You Will Need

pen and paper

Step 1

Learn about peer-to-peer lending. This form of lending involves a borrower putting up financial information like, credit score and debt to income ratio. This means you can literally pick the type of person you want to lend to. This offers huge benefits compared to other investments, you won't always get someone to pay you back, but with this ability you are in control of who you invest in.

Step 2

Understand the value of the customer vs interest rates. If you want to go for a more riskier client that you think might pay, you can charge them higher interest rates. However, if you choose the less riskier borrowers with a debt to income ratio that is normal or better, you can significantly decrease risk. This method is more consistent but has less return on investment. It all depends on what level of risk your willing to take.

Step 3

Learn bankroll management. Like any form of investing, it's not wise to invest all of your capital in one investment. Never invest more than 20% of your entire bankroll on any one deal, no matter how secure you feel the investment is. Even if you know someone personally, situations can always come up and cause financial hardship.

Step 4

Decide what amount of money you want to make. You can pretty much bank on 5-9% return on interest from peer-to-peer lending. The amount of money you make on this form of investment depends on the amount of money you want to invest. You can actually make a higher percentage of return but it's unlikely if you are just starting out.

Step 5

Hedge against risky investments. Any time you take a lot of risk when investing in a borrower, you must hedge against that risk by dealing with more financially stable people. Sure, you can make more money by investing in riskier clients, but you shouldn't invest in more than one risky client per week.

Step 6

Learn when the best time to invest in a borrower. Holidays are the best time to invest, because the middle class is low on cash and in need of shopping money. These people typically have credit cards that are maxed out but they always come through with the money. These people are used to having plenty of debt and are used to paying large amounts of money in interest.

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