Peer to peer loans are a great option if you want to make money by lending some of your money to a private individual or company. Borrowing money through a peer to peer lender such as Lendiblink or Broadlend Credit allows you to make money from the interest that the borrower pays. Lending money is a great way to increase its diversification and reduce the risk in its investment portfolio.
Peet to peer loans are also called p2p loans and peer-to-peer loans.
Lending money through a peer to peer loan company is much safer than lending money directly to a private individual or company because you then own a stake in many loans. You can make money even if one or two of the borrowers do not repay the loan. If you lend privately, you will lose the entire amount if the borrower does not repay.
What are peer to peer loans?
Peer to peer (p2p) is a loan where one individual lends to another. It is not a bank that lends the money but it is a private person. There are peer to peer loans aimed at both private individuals and companies. Peer to peer loans allow people who might otherwise not be able to borrow to borrow money. This is because a private individual may assess the lender’s ability to repay differently than a bank does. Peer to peer lenders may also be willing to take a higher risk than banks do as long as they get high interest rates on the loan.
For lenders, peer to peer loans provide a chance to earn money from the interest income that the loans generate. It gives investors the opportunity to diversify their investments and reduce their risk. They choose the person they want to legend to and how much. In other words, it is up to each investor to decide how much risk he wants to accept.
The P2P stream can be a great way to earn a return on its savings capital.
How do peer to peer loans work?
Below we will look at how peer to peer loans work for those who want to lend money to other individuals through a peer to peer loan company. The first thing you need to do is open an account with a loan broker. We recommend Broadlend Credit or Lendiblink . Both of these companies are reliable and have been active for many years. Click on the links to read our reviews.
Once you have opened an account with a loan broker you must deposit money with the company to be able to lend money. Once you have deposited money, you can either choose to:
- Let the lender manage how your money is lent.
- Decide for yourself which people and companies you want to borrow.
Both options have their advantages and which option is best for you depends on how active you want to be. You can read more about these two options further down in the text.
Whichever option you choose, you will only lend a small portion of each loan. If a person wants to borrow USD 10,000 then this money will be lent by a larger number of lenders. It can, for example, about 100 lenders who all contribute 100 USD each to this loan. Because each lender only accounts for a very small portion of each loan, the credit risk is significantly reduced. If you lend USD 10,000 to a person, you lose everything if they do not pay. If you have instead loaned USD 100 to 100 different borrowers, all of whom have borrowed USD 10,000 per person, the risk is much less that you will lose all or a large part of your money as a result of borrowers not repaying their loans.
When the borrower then pays his interest, you receive part of this. How much of the interest payment you receive is in relation to how much of the loan you contributed. It is this interest that allows you to make money by lending money through p2p loans. When the borrower repays the loan, this money is distributed to all who contributed to the loan. In other words, everyone gets their money back at the same rate. A lender never gets their money back before the other lenders.
How much you can make from borrowing money through a peer to peer lender varies between different companies and how much risk you take. I recommend that you read our reviews of individual companies to read more about how much you can make by lending money to them.
Let the lender manage how your money is lent
Allowing the lender to handle lending can be a very good option if you want a hands-off savings. By using this option you do not need to decide which lenders should be able to borrow money, but you can let the loan company do this and instead only earn a passive income from the lending. This is a good option for most savers.
In many cases, you can determine your risk profile yourself. You can choose whether the loan company should only lend to individuals and companies that are very likely to repay their loans or if you also want to lend to riskier borrowers.
Lending money to riskier borrowers allows you to earn more money in interest rates, but also increases the risk of loan losses as a result of borrowers not paying their loans.
Some companies also let you decide if you want to legend to individuals or companies or both.
Decide for yourself which person-to-person loans you want to approve
Deciding for yourself which loans you want to contribute money to and how much you want to contribute gives you total control over your lending. This requires a lot more work than just letting the loan company take care of everything but can allow you to earn a higher return if you are good at deciding which people will pay off their loans. You can choose to lend money to individuals and companies that you think will pay back even if the loan company sees them as high risk borrowers. This may include, for example, persons residing abroad, persons with payment remarks or small companies with no financial history. It is therefore possible to find loans that look more risky in an automatic review than they are when you take everything into account.The automatic review done by a company does not take into account all the details that a manual review can.In the same way, some loans may look less risky on an automatic review than they actually are. This can allow you to reduce your credit losses and raise your interest income by choosing for yourself which loans you want to participate in.
This option lets you decide exactly what risks you want to take and which ones you do not want to take. It allows you to build a loan profile with a very low risk or one with a higher risk than the one you would be exposed to if the loan company took care of the lending of your money. Letting the loan company choose how your money is to be lent is the easiest option, but by choosing which person-to-person loan and person-to-business loan you want to participate in, you get complete control.
Peer-to-peer loans are a good investment
Lending money to other private individuals through peer to peer loans will in most cases yield lower returns than you get in the stock market, but it is a very good option for anyone who wants to broaden their investment portfolio and increase their risk spread. I don’t think you should invest all your money in peer to peer loans but investing a small portion of your total portfolio in p2p loans can be a very good idea.