Investing in companies or stocks is a great way to use the funds that you have at your disposal to make a profit, however, using these traditional methods can be tedious and extremely risky. Luckily, the growing online lending industry offers opportunities for both those who need to borrow money, as well as for those who have a couple of extra hundred dollars that they are willing to lend.
Peer-to-peer lending platforms can offer individuals an easy way to increase their funds, without having to wait for too long.
Peer-to-peer lending platforms explained
Peer-to-peer lending platforms are essentially websites that help borrowers and lenders connect. The companies that own them act as neutral third-parties that get a commission from every transaction and are only concerned with ensuring that everyone respects their agreements.
The money is offered and borrowed by users of the platform. Borrowers who are usually small companies or individuals will create a website account, add the personal and financial data that the platform requires them to submit, and then specify what amount of money they are looking to borrow. All this information is entered in a database that can be accessed only by the lenders (individual investors) who are free to look through the listings until they find a loan request that they find appealing.
Lenders can either offer borrowers the entire amount of money that they asked for or only a fraction. They will earn interest depending on the amount of money that they loaned.
An increasingly larger number of individuals is using B2B lending platforms in favor of traditional banking services due to the fact that these websites require less paperwork, they process requests and transactions faster, and they offer competitive interest rates.
The large number of borrowers makes it easy to divide your funds between multiple loans, as a safety precaution. These online loans, especially short-term ones are not secured and do come with certain risks.
How to start investing in P2P lending as fast as possible?
There are hundreds of P2P lending platforms and, although all of them treat their investors well, some are better with their borrowers than others. The direct result of this is the fact that some websites will only have a few thousand users while others will have millions.
- Find a platform that EVERYONE likes
The first step towards investing in P2P lending is to do a bit of research and find a platform that everyone likes. Try to put yourself in the borrower’s shoes and look for a platform that offers a lot of transparency and has great reviews. Websites like TrustPilot will provide valuable information in terms of a platform’s popularity among borrowers.
You will also have to look at the terms of conditions that the platform offers investors. Pay attention to the minimum initial investment that is required to create an account. Most platforms require investors to deposit at least $25-$30.
Once you create an account, you will be able to offer loans. Borrower applications will contain the interest rate (calculated by the platform), the purpose of the loan, the term (anywhere between 30 days to 5 years), and a risk assessment.
- Start offering loans to make money
When you find a loan request that you’re interested in payday loans from adherents.com, you will be able to offer part of the money or all of it. It is important to keep in mind that the transaction will only go through once the entire loan has been financed. If you only offer a portion of the money, the borrower will not pay interest until other lenders come and finish financing it.
If you are worried about the risks associated with certain profiles, you can either skip them completely or spread your funds between as many borrowers as possible. This will ensure that if an individual is unable to pay back the money, you won’t lose everything that you’ve invested.
Once the borrower starts making payments, which consist of interest and principal, each lender that has contributed to financing the loan will get the money that they have invested plus profit. This having been said, it is important to keep in mind that the platform charges a small fee to both lenders and borrowers.
- Automate the transactions and let the platform work for you
As time goes by and you keep investing money in the platform, it will become increasingly harder to keep track of every loan that you finance or contribute to. Take advantage of the automation functions that p2p lending websites offer and let the platform select the loans to invest money in. You will have to input your preferences in terms of what risk mark and the interest rate you prefer, after which the website will automatically invest the amount of money that you set in the type of loans that you choose.