Have you ever thought how nice it would be to make money like the banks do? Well, now you can with Peer-to-Peer Lending. Several new Fintech developments have risen since the 2008 global financial crisis. One of the most innovative ideas is P2P Lending. These new investment platforms connect people who are looking to borrow money, with other people that are willing to lend them money. Very often, the borrower is able to obtain a loan at a much lower interest rate compared to a normal lending institution. And when lenders pool together, they get to keep the interest made on each loan they invest in. The beauty of this idea is that both borrowers and lenders get something out of this transaction and there’s absolutely no need for a traditional bank.
For a detailed explanation of the allocations and filters that we personally use be sure to check our our Lending Club Strategy article.
Each loan that gets offered on P2P Lending platforms is open to the entire network of investors. Investors able to invest as little as $25 into each note. The best P2P Lending Platforms usually fulfill most loan requests within a week of the request. The speed to fulfill these loan requests continues to improve as more and more investors get involved. Many people are realizing the wisdom of using this type of alternative asset class to diversifying their portfolios.
We believe the best strategy for investing in P2P Notes is to diversify your investment across many varied types of loans. Thus, you reduce the risk of an occasional default or non-payment of one individual loan. The various loan types may include Refinancing Credit Card Debt, Consolidating Debts, Improving Your Home, Investing in Renewable Energy, Acquiring Needed Business Funding, and Covering Major Medical Expenses.
The best P2P Lending Platforms, such as Lending Club and Prosper, use a vigorous underwriting process to properly classify the risk of each loan they offer. Only the best quality loans for each risk level is offered to investors while denying the highest risk borrowers. Based on multiple factors, including credit score and debt-to-income ratio, each borrower is classified into a specific risk category and offered a loan with an interest percentage relative to their creditworthiness. Thus, the best borrowers get the best interest rates while the riskier borrowers are offered the higher interest rate loans. In turn, investors can align themselves with various loan requests based on their own risk tolerance. If you’re more of a risk taker, you will receive a higher return on your investment – and visa-verse.
How it works for the borrower
- Apply online in minutes
- Tell the P2P lender about yourself and how much you need to borrow.
- Review your loan offers. your monthly payment and interest rate options, and select the one you like best.
- Your loan is automatically deposited into your bank account.
How it works for the investor
- Open an account. Opening an account is quick and easy. Select from a regular Investment Account, Traditional or Roth IRA, Joint Account, 401(K) Rollover. Corporate Account, Trust Account, Custodial Account, et. al.
- Pick a strategy. Automate investments based on your pre-selected strategy, or browse loans and purchase Notes manually
- Fund the account. Link a bank account and transfer as little as $25 to the P2P lender account by ACH, wire, or a check. The P2P lender then deposits investment earning back into the same bank account.
With so many loans to choose from, it can be difficult to decide which loans are the best choice for maintaining the highest return on your investment. P2P Lending Platforms like Lending Club offer great filtering tools that allow you to add very specific criteria to help you choose which investment loans you want. When used correctly, these filters drastically increase your P2P Portfolio’s overall performance. We have developed a proven strategy that has consistently resulted in paying the highest average rate for each level of risk. Our choice of loans tends to be more conservative: smaller allocations to riskier loans to maintain our higher return on investment.
If you’re interested in learning more about the filters and allocations we use for our automated P2P investments, be sure to check out our Lending Club Strategy.
Check out the growing interest in P2P Lending and the Lending Club Platform