Making Extra Money With P2P Lending

flowerPeer to Peer lending is quickly becoming one of the hottest new ways to create multiple streams of income. While there is risk involved, there are various methods that can reduce the risks that individual investors face and provide protection against non-payments. If you're looking for an potential way to make extra cash every month, P2P lending is definitely worth consideration.

If you're not familiar with how P2P lending works, it's actually quite simple. Instead of going to a traditional bank for a loan, a person will visit one of the many P2P sites that are in existence right now (Prosper for all loans and Fynanz for student loans are the only one for p2p lenders at the exact moment but Lending Club may reopen soon and Loanio has been in beta for some time...). They'll post their loan request and the lenders in that P2P community can go over it. Sites will run the credit rating of posters to determine how risky they are, be careful of borrowers with bad credit or even good, but unusual credit.  You are looking for very clean borrowers with 5 years of credit history, no public records, 0-2 inquires in the last 6 months, for reasonable loans amounts, with a story that makes financial sense. 

After the loan opportunity has been posted, lenders or investors will browse through and see if they want to take that risk. Most of the current P2P sites allow sharing of loans so that the risk is spread around. For example, if someone needs a $9000 loan, instead of one lender offering the whole amount, thirty lenders may each provide $300. The interest rate payments will be equally divided among those lenders based on much of the loan they purchase.  As with everything make sure you diversify, ideally you would want AT LEAST 30-50 separate loans.

The claimed returns on the Prosper Select Index as of May 2008 was 7.87%.  There is a bunch of fine print that goes along with that number which is why it is essential to diversify and stick to very clean loans. While possible I wouldn't trust anyone that claimed it was easy to earn out sized returns (15+%) on these marketplaces. Still, 7% is better than most savings accounts, especially since the rates are currently dropping. While it is a bit more risky than a certificate of deposit, it's a lot nicer to earn two to four times the amount of interest on your investment.

When you're shopping around for a P2P community it is important to find one that will provide you with the tools that you need to succeed. For example, they need to have a system in place for debt collections if someone defaults on a loan and they need to be able to provide you with an accurate assessment of the risks involved in making that loan. Currently the sites will not allow loan requests from those with credit ratings lower than 540 on Prosper, which can greatly reduce your amount of total risk, but even then you should stick to the higher credit grades (AA-C).  Once you get 12 months of experience you might consider expanding beyond that range... personally I am not.

While there is no magic bullet when it comes to easily making money with P2P lending; however, you can easily make a nice little return on a small investment and you'll have the benefit of being able to create multiple streams of income. If you've only got a small amount to invest and you don't want to tie it up in a CD, consider giving P2P lending a try.

Keep in mind that any venture has its risks, but the benefits of P2P lending might outweigh them. By picking the right kinds of loans, you can reduce your own risks and manage your investments. Start out small and as you start to get larger returns you can invest more money. Overall, P2P lending is fun and lucrative, when managed properly.

I have read that P2P lending is addictive because it is like financial voyeurism.  Funny, but true analogy.

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Originally posted 2008-11-28 09:01:16. Republished by Blog Post Promoter

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16 comments ↓
#1 Patrick on 06.25.08 at 6:56 am

Very good write-up about P2P lending. I’ve been involved with it for about 6 months now, and have been happy with the results. I know the loans aren’t guaranteed, but I only have a very small portion of my portfolio in P2P loans – basically my “fun money.” This satisfies my need to try new things, while keeping my risk low. So far, I haven’t had any delinquencies.

#2 Rich Leverage on 06.25.08 at 12:19 pm

@Patrick

Good Luck… I have been doing for almost 2 years. It has coming a long way since I started… I still don’t have a giant sum of money in play, but it is beginning to become quite significant.

#3 yolanda calzadilla on 06.26.08 at 6:48 am

hello i need help to get a loan my credit score is perfect i have comercial property and need to find out if you can help me thank you

#4 Jim on 06.26.08 at 10:25 am

Don’t forget Fynanz. They’re open to lenders…have been since March. http://www.fynanz.com

They’re P2P lending for student loans – REAL student loans that have been underwritten according to traditional guidelines. Fynanz partially or wholly guarantees loans, verifies that students are actually enrolled and that they’re going to use the funds for qualified educational expenses. Loan disbursement is check written out to borrower AND school. So there’s no funny business going on there (ie, you know there not going to blow it on something other than school). Fynanz also has loans that are co-signed by parents. I think all this adds up to better risk scenario as compared to loans on Prosper that are listed as “student loans” – they’re not.

Also, Fynanz is offering some cool lending bonuses to lenders…3% if you lend $3000…5% if you lend $3000 + refer 5 friends. That’s a big bonus on top of the rates the loans are already paying.

#5 Prosper Roundup Fires in Northern California Edition on 06.28.08 at 7:51 pm

[...] Rich Credit Debt Loan is Making Extra Money With P2P Lending [...]

#6 Rich Leverage on 06.29.08 at 7:56 am

@yolanda

I wish you the best of luck…

I am not into funding projects pitched to me over the Internet from an unknown person, but I do appreciate your enthusiasm. Put a listing on a p2p marketplace you will be happy with the results.

Perhaps we will meet some day through my trusted channels.

#7 Weekly Round-up - New Music Edition on 06.29.08 at 11:47 am

[...] from Rich Credit Debt Loan wrote about making extra money with P2P lending . If you are interested in P2P lending, this is a good article to [...]

#8 Carnival of Peer-to-Peer Lending - 10th Edition | Personal Loan Portfolio on 06.30.08 at 9:21 pm

[...] Rich Leverage summarized peer-to-peer lending in the post Making Extra Money With P2P Lending. [...]

#9 P2P Lending Update on 07.01.08 at 3:44 am

[...] Making Extra Money With P2P Lending [...]

#10 Update of IRR/ROI Values July 2008 | P2P Lending, Peer to Peer Lending, People to People Lending | News, Information, Borrowing and Lending Strategy on 07.07.08 at 9:50 am

[...] go back and do it again?  I would follow advice very similar to Rich Credit Debt Loan in the post Making Extra Money With P2P Lending. I have learned a lot about credit risks and the like, but I would have much rather been more [...]

#11 4 Ideas to Create Multiple Income Streams Online | Rich Credit Debt Loan on 07.10.08 at 5:17 am

[...] This is an interesting and potentially great way to make money online. Depending on your particular lending strategy it can even be fairly passive. There are numerous peer to peer lending sites that are seeking lenders and investors. You don’t need to be a bank – all you need is some cash and the stomach to take a little risk. Be sure to follow my tips at Making extra money with peer-to-peer lending. [...]

#12 Trishagi on 07.30.08 at 8:57 am

Vestorbid.com will be one of the best p2p lending companies soon. Their qualifications are lower than most others, and you can invest as little as $25.00 to get started lending to others. I went to the website and left my email address for more information from them, and with the info that I read, Im definitle telling all my friends and family about Vestorbid.com.

#13 Vestorbid.com on 07.30.08 at 8:59 am

Coming Soon!! Sounds like a great company.

#14 3 Reasons Why You Need Multiple Streams of Income | Rich Credit Debt Loan on 08.06.08 at 5:48 am

[...] now is the premise of creating multiple streams of income. While everyone wouldn’t mind making a little extra cash, there are even more benefits that can be reaped from having more than one source of income. [...]

#15 The Dangers of Long Term and Interest Only Loans | Rich Credit Debt Loan on 08.19.08 at 5:22 am

[...] are two new trends in the banking world that may actually be very dangerous for consumers. Long term personal loans [...]

#16 4 Ideas to Create Multiple Income Streams Online — P2P No Bank on 12.09.08 at 11:01 am

[...] This is an interesting and potentially great way to make money online. Depending on your particular lending strategy it can even be fairly passive. There are numerous peer to peer lending sites that are seeking lenders and investors. You don’t need to be a bank – all you need is some cash and the stomach to take a little risk. Be sure to follow my tips at Making extra money with peer-to-peer lending. [...]

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