Are you looking to diversify your investments? Whether you’re tired of the ups and downs of stocks or want something more lucrative than bonds, peer-to-peer lending offers a great way to invest your funds in a completely different ways.
Getting started as a peer-to-peer lender is simple. All you need is a computer and money to invest and you can start.
Steps to Become a Peer-to-Peer Lender
Choose your peer-to-peer site
If you look around, there are hundreds of peer-to-peer sites available today. Take a look around and see who offers what you want out of a company. Are you looking for high-risk loans, low-risk loans, a combination or even to loan to a specific demographic? Choose your site according to what you need.
Open an account
Once you choose your site, you’ll open an account. The process is simple. You’ll complete an application that requires basic personal information including your name, address, and social security number.
You’ll also need to choose the type of account – taxable or tax-advantaged. Many sites require you to start with a taxable account to get a feel for how it works before setting up a retirement account, such as an IRA.
Fund your account
Once you’re up and running, you can fund your account and get started. Simply link your checking or savings account to your account and automatically transfer funds. Each site differs in how much you must invest. Some have no minimum investment requirements, while others require $1,000 to $2,000 to get started.
Choose your loans
Once you have enough money invested to meet the peer-to-peer lender’s requirements, you can choose loans. You can typically browse the available notes, looking at their rate, term, credit score, amount, and purpose.
Most platforms allow you to invest in as many loans as you want with as little as $25 per loan. This is a great way to diversify your investments. You can choose both high risk and low-risk loans to maximize your profits, while offsetting the risk of default as high-risk loans have a higher risk of default, aka non-payment.
Reinvest your returns
Payments begin 30 days after note origination. At that time, you’ll start receiving principal and interest payments. Your portion of the payment goes directly to your account on the P2P site. You can then manage the cash as you see fit, whether you transfer it to your checking account or you reinvest the funds in additional notes for more profits.
Take your time when choosing a peer-to-peer lender for your investments. Make sure they offer the screening you’re comfortable with, the returns you desire, and the ability to invest the amount you’re comfortable investing in peer-to-peer loans. P2P lending is a great way to add to your existing portfolio or to start investing if you want to avoid the risk of the ever-changing stock market in today’s volatile economy.