How to Make Money by Lending Money (25 Tips & Resources)

Yes, you can definitely make money by lending money!

This comprehensive article reveals how it works and best SECRET tips to help you.

 

Can You Really Make Money by Lending Money?

Of course you can.

You see, today you probably made money.

You may have worked at a job in which they paid you for your time, you may have sold a product, you may have provided a service in which someone paid you for that work that you did or the knowledge that you have, etc.

Also, it’s possible that you made money off of your money if you have an investment portfolio and your Investments did well today.

One additional way that we can receive money is by borrowing from a lending financial institution at a set interest rate and then paying them back over a certain amount of time.

It is safe to say and assume that we all need money and our money comes to us from a number of legitimate sources.

Another possibility in which we can earn money by utilizing our own money is to take on the role of a lender through a process known as peer-to-peer lending.

Therefore as a possibility of making our money work for us let us take a look at this process and see how we can make money by lending money.

 

Tips to Help You Make Money by Lending Money

 

1. Know What a P2P is  

Peer-to-peer lending or P2P is an investment opportunity for an individual who has money to loan and utilizes this lending platform to lend money to an individual needing a loan.

The process powerfully reduces the costs of the loan by excluding a middle person in the lending process with that lending person being a bank or lending institution.

 

2. Know the Participants

The participants in this process are the lenders and the borrowers.

Lenders are defined as individual investors who have the financial resources to provide the money for these loans.

The borrowers are typically individuals or small businesses that are in need of small loans.

The P2P facilitates this business process.

 

3. Know the Benefits

As a borrower applying for a loan through this platform there are many advantages.

Some of those advantages include:

• Less paperwork
• Quicker decisions
• Competitive interest rates

 

4. Know the Process

As a lender, the process is fairly straightforward.

The steps include:

• Choosing a lending platform
• Opening an account,
• Depositing funds
• Begin the process by reviewing potential borrowers

 

5. Know about the Loan

Each lending platform is different and has varying qualifications and procedures to start.

Generally, there is a minimum investment required which can be as little as $25.

Once your account has been set up, you are then able to review a listing of individuals who are making applications for loans.

The decision on which borrowers you wish to lend money to is completely up to you.

The applicant making a request for a loan will provide the following information

The interest rate that they are looking to obtain

Reason for the loan

The terms they are willing to agree to (AIPAC and years)

A risk assessment is assigned to the individual as it relates to their paying back the loan.

Also See: Powerful Tips To Help You Borrow Money the Right Way.

 

6. Diversify

With the possibility of each loan presented to you, you have choices that you can make.

Some of those choices include whether you wish to provide funding for any of the loan applicants, some of the loan applicants, or whether you wish to choose fully fund a loan that is been requested.

A good strategy is to diversify your funding of these loans.

The best strategy would be to invest in the different grades of the loans as far as their risk assessment and different terms of when the loan matures.

Also, as part of the diversification process, it would be a good idea to invest small amounts in multiple loans rather than one large amount into an individual loan.

 

7. Return

Your return on investment is realized when the payments on the loan are made.

A percentage of the payment, which is a combination of the interest and principal, is returned to each of the investors that have chosen to be part of the successful awarding of the loan.

When you receive the individual payments, you have the option to cash out or reinvest the amounts in additional loans.

 

8. Fee

Of course, there is a fee assessed by the P2P platforms.

Each of the platforms can vary.

 

9. Pros

There are many advantages or positive reasons for utilizing a peer-to-peer lending platform.

Those advantages include:

• Helping small businesses
• Providing smaller amounts of money for loans
• Provide diversification for your portfolio
• Achieve higher earnings on your invested money
• Automate your account to select loans you are interested in

 

10. Cons

On the other hand, there are disadvantages that are associated with P2P lending

Those disadvantages include:

• The potential of losing money
• The investment being tied up for the complete term of the loan
• Not FDIC insured
• Some platforms are not allowed in certain states

 

11. Opportunity

Peer-to-peer lending can be a good opportunity for an individual who has the investment money available, wishes to help others, and yet still get a return on their investment that is higher than most savings accounts.

The reality is that there will always be individuals who are in need of a loan or money for a variety of reasons

It would seem that these lending platforms will continue to be in demand and be a long-term investment strategy for investors.

 

 

12. Research

Of course, it is important to remember that this is your hard-earned money at the point to look up as you do.

Therefore, if considering this aspect of diversifying your investment portfolio, it is important to do your own research and due diligence to ensure that not only the lending company that you work with meets your investment standard but also to ensure that the money you provide for loans is as risk-free as possible.

 

13. Choose or Automate

On these lending platforms, there can be the opportunity to review and be involved with hundreds of loans that have been applied for.

With the choice being yours, you have the option to use look over the loan and select the one, if any, that you wish to support.

Another option that many of the platforms offer is just to automate the process.

This means that you select the characteristics for the criteria of the loans that are of interest to you.

For example, if you want to fund riskier loans you would make that part of your interest in supporting a loan.

The platform will then automatically invest the amount that you specify into the loans that are equal to the characteristics of the loan that you have chosen.

 

14. Prerequisites

It is important to note that there are a few prerequisites as it relates to being involved with a P2P platform.

Some of those prerequisites include residing in the state that allows for involvement in this peer-to-peer lending activity as well as having a verifiable income as it relates to the different states that allow participation.

Specifically, there are some states that may require a minimum of earning $70,000 a year or more in income in order to participate.

Also, you need a bank account.

Also See: Ways for Making Money as a Secured Party Creditor.

 

15. States

As of this writing, there are some states that do not allow legally the involvement of their residents in a peer-to-peer lending platform.

Those current states include:

• Arizona
• Ohio
• New Mexico
• North Carolina
• North Dakota
• Pennsylvania
• Texas

Also, there are only states that will allow the use of one platform over another.

 

16. Rate of Return

The rate of return that you realize on your investment is dependent upon which loans you choose to be supportive of.

The loans generally fall into three categories.

Those three categories are:

• Low risk
• Medium risk
• High risk

Each of the three categories has a different rate of return on the loan with the low risk being the least amount of return and the high risk being the greatest.

A possible strategy for maximizing your investment is to spread your investment dollars over these three categories.

Of course, that is your decision and should involve your aversion to risk versus how much money you wish to receive back as your investment.

 

17. Taxes

An important aspect to consider when being involved with this lending program is the tax implications.

In addition to at least being 18 years of age, having a Social Security number and a checking account along with a $70,000 annual income, you will need to submit to a background check.

Once all of this has been completed, the site that you are working with will submit a 1099 form to the IRS for you.

It is important to remember that rules regarding taxes on these types of investment transactions can be involved and therefore it is best to involve your CPA or accountant as it relates to taxes.

 

18. Default

If an individual has received a loan and defaults on that loan, the lending site will endeavor and in good faith try to obtain satisfaction as it relates to that loan.

Often, a peer-to-peer lending site will pursue the payment repayment of the loan through a collection agency but there is always the risk that some investments will need to be written off.

 

19. Requirements for a Borrower

When looking to make money by lending out money through a P2P program, it is also beneficial to understand what the potential borrower has to go through.

Specifically, borrowers are required to fill out an application for a loan online.

These applications are classified as soft inquiries and do not negatively impact the individual’s credit report.

If the borrower is approved, the interest rate is dependent upon a number of variables:

• Credit score
• Loan amount,
• Loan term
• Credit usage
• Credit history

The minimum credit score generally is between 640 and 660.

A personal loan can be as low as $1,000 and generally cannot exceed $35,000.

Small business loans can start at 15,000 and are generally capped at $100,000.

 

20. Link to Bank

A great way to invest in this peer-to-peer lending platform is to automate your investment each month.

You can accomplish this by linking your bank account with the platform and setting up automatic payments.

This can happen every month and therefore it is something that does not need a significant amount of time or attention as it relates to your involvement.

Also, if the need to withdraw presents itself, you just turn off the automated investing, collect your interest and conduct a transfer to your bank account, and then you can turn the automated feature back to engaged.

 

21. Monthly Statement

Many of the lending platforms will send a monthly statement that will reflect how much interest you have earned for that particular month.

This is a great service as it relates to the passive income that you receive and helps you to be aware of what your earnings are as it relates to your investment.

 

Resources & Companies to Help You Make Money by Lending Money

 

22. Prosper

One of the year lending platforms that has been in existence for quite a while is Prosper.

This particular P2P lending platform has been in existence since 2005 and was the first lending platform between individuals that came into existence.

Subsequently, there have been more than $12 billion in loans that have been processed through this peer-to-peer lending platform with over 810,000 people being provided loans.

Click here to check out Prosper

 

23. Lending Club

The Lending Club peer-to-peer platform started operation in the year 2007.

On their website, they indicate that they have helped millions of people by taking control of their indebtedness, helping their small businesses gain a financial foothold, and allowing individuals to have a more secure-looking financial future.

Click here to check out Lending Club

 

24. Funding Circle

Funding Circle markets itself as an online company that connects businesses needing a loan with investors.

You would be classified as an investor if you participated in this peer-to-peer platform and would collect 100% of your pro-rata share of the interest in principal after Funding Circle takes out their servicing fee.

The minimum investment for this platform is $25,000 with the minimum amount needed to be invested per note being $500.

The fees charged by this company are 1%.

 

25. Peerform

Peerform indicates on their website that the advantages of being involved as an investor include:

• Steady returns
• Use of a Peerform Loan Analyzer
• State of the art fraud prevention
• Customization

As it relates to the Peerform Loan Analyzer the site indicates that an algorithm has been created for pricing loans and standardizing a higher level of expectations.

Rather than using filters, it uses empirical methods to better determine any credit risk associated with the consumer.

Click here to check out Peerform

 

Personal Story

Regardless of who we are we quickly learn that money is needed to obtain certain things that we want in our lives.

Our first introduction to borrowing money and having to pay interest could have been a student loan, buying an electronic device, purchasing a home, etc.

As for me, my first loan taken out was in the amount of $500.

It was through a Federal Credit Union and I was borrowing the money so that I could purchase a car that was owned by another individual.

I don’t remember all the loan details, but it wasn’t the last loan that I entered into.

In the future additional cars, other major purchases, and the buying of a home would follow.

It would seem that for a significant number of Americans that borrowing money is an ongoing financial process.

 

How to Make Money by Lending Money FAQs

 

What is the Annual Revenue of Peer-to-peer Lending?

The projected annual revenue of peer-to-peer lending is expected to reach $150 billion by 2025.

 

If Considering Using the Peer-to-peer Lending Platform What is the Most Important Question to Ask?

The most important question to ask would be if the loan is secured.

 

You Can Do It

As it relates to your investment portfolio it is good to have options.

One of those options, in addition to the standard stocks, bonds, etc, is the possibility of lending out money to others.

With some research on your part and being comfortable with the possibility of getting a good return on your money, this may be a good opportunity for you to be involved.

 

Conclusion

At one time or another, the majority of us need extra cash for a variety of reasons.

Generally, we may be fortunate enough to be able to go to family members for that needed cash but often we need to go to a financial institution or use our credit cards to borrow that money at a set interest rate.

Therefore, a great way to help others and earn some money for ourselves is through the peer-to-peer lending process.