Peer-to-Peer (P2P) lending is something that is becoming very popular on the internet. Basically people lend to other people and both parties benefit. The borrowers benefit because they can get a lower rate than they could at a traditional bank, with a credit card, or from one of those pay day advance places. The lender benefits because they earn a higher rate than they would get keeping their money in a bank and often a better rate then they would get investing in stocks, bonds or mutual funds.
Example: Someone has a credit card balance of $5,000 at a 16% interest rate (not at all uncommon). They could use a p2p lending site and get a $5,000 loan to pay off the card at 8%. This would save them $400 a year in interest. By lending to this person, you could get a relatively safe 8% rate of return which is more than double what you will find at any bank.
Earn 12%+ on your Money?
There are a couple different sites out there doing this. I use Prosper which was the first and the largest p2p company. Prosper gives borrowers a credit grade based on their credit report that you use when choosing to make a loan. The lending process is very similar to an eBay auction. A borrower creates a listing telling why they need the loan, how they are going to repay it, etc. Then prosper lenders bid on the loan. You can bid as little as $50 and pick the rate you are willing to lend at. Prosper then takes the best bids and uses it to create the loan. So if there is a listing for a $5,000 loan to payoff credit cards and 200 people make $50 bids, Prosper will take the first 100 bids with the lowest rates to create the loan. Then once a month, you receive a payment in your prosper account that you can transfer to your bank account or use to make additional loans.
I’ve been using Prosper since May 2007 and have placed about 30 $50 loans so far. So far everything has gone just fine and my average rate of return has been in excess of 12% which has been a lot better than my investments have done over the same period.
Make Money & Feel Good About It
It’s important to note that Prosper loans are not guaranteed. Just like any other loan, there is a chance that the loan could go bad and you could lose the money you lent. The grade of the borrower allows you to make loans based on your risk tolerance and prosper also has an independent collection agency that will try and collect on bad loans. By keeping your loans to $50, you can diversify with many loans spread over different grades so if one goes bad, it doesn’t affect you too much. So based on that, lending on Prosper is a great way to make a little extra money online and also help some very deserving people who are being screwed by the banks, credit cards, and pay day advance places.
Like I said, I’ve been on Prosper for awhile now so if you have any questions, feel free to leave a comment and I’d be happy to answer!