A new investment opportunity taking shape online is providing peer to peer loans, also called person to person lending. With this type of lending, online companies work as facilitators for individuals to lend money to other individuals or small businesses, with no banks involved. For those with even a little extra cash, this can be a great way to earn more than with a savings account. There are some risks involved as people may just not pay up on their loan. Research and selective lending will help minimize the risks of providing peer to peer loans.

Peer to Peer Finance Websites

Choose a person to person lending website that you have researchedGetting a Loan with Bad CreditCredit: Flickr: AMagill and are comfortable using.  A general internet search will help find different companies. Search the U.S. Securities and Exchange Commission online database for a company’s SEC registration.  Be leery of any companies not registered with the SEC.  Also check with the Better Business Bureau for any complaints filed against the company you are considering.

Choosing Who to Loan Money To

Review all the information provided by a person seeking a loan. Typically, the facilitating website will give information about the person’s credit history to review. The person applying for the loan will have a profile explaining the need for the loan.  

Ask questions of the person requesting the loan. If you feel you need more details, there is usually an option to ask the person to respond to your questions before you commit to loaning money.

Minimize Your Risks

Lending money privately is certainly not without risks. The person accepting the loan can default, leaving you with little recourse. When investing in peer 2 peer lending, take some steps to minimize your financial risk.

Start by lending small amounts. Until you get the hang of it, lend just a few hundred dollars at a time. By lending small amounts, you can learn the process without risking all of your money.

Lend small amounts to several different people. Lenders are not typically required to lend all of the money a person is asking for. Several lenders can lend to one person. By giving small amounts to different individuals, you will still be able to maximize your profits while reducing the impact of any one person defaulting.

Further Reading:

Person to Person Loans