A process that has historically been unavailable to anyone other than large institutional investors.Īs with any investment, you should carefully consider the risks and rewards before you invest. Is P2P Investing a Good Way to Make Money?Īlthough it’s relatively new, P2P represents an opportunity for individual investors to jump into the lending process. Qualifications/restrictions vary by lending platform and permanent residence of investor (some platforms do not operate in all states).P2P lending has not been long-term tested in the marketplace (has gained popularity within the last 10 years).
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Principal investment is tied up for the full term of the loan (typically 2 to 5 years).Risk losing money (potentially all your principal) if borrowers default on loans.Automate your account so that you don’t have to review individual loan requestsĭisadvantages of Investing in P2P Lending Cons:.Achieve higher yield than currently available (through savings accounts, CDs, etc.).Diversify loan portfolio by spreading money into multiple loans.Customize loans (amount of loan, risk level, term, etc.).Start investing with a small dollar amount.Help support small businesses or individuals by lending money.Related: A Worthy Investment At 5% Fixed Interest Advantages of Investing in P2P Lending Pros: These include Upstart, Funding Circle, Peerform, and Lending Loop (in Canada). However, with the growing popularity of P2P lending, other players are joining the market. Prosper and Lending Club are by far, the largest P2P lending sites in North America. In 2007, Lending Club launched and their site states “over the last 10 years, we’ve helped millions of people take control of their debt, grow their small businesses, and invest for the future.” Since then, Prosper has facilitated more than $12 billion in loans to more than 810,000 people.” The oldest peer-to-peer lending platform in North America is Prosper.Īccording to the Prosper website, it was “founded in 2005 as the first peer-to-peer lending marketplace in the United States. The platform automatically invests the amount you specify into the loans meeting your criteria. This automatic option allows you to select the criteria of the loans of interest to you (risk grade of the loan for example ). So, each site offers you the option to manually select the loans or automate the process. With hundreds of loans available at each of the lending platforms, it’s easy to get overwhelmed. The profits are available for you to reinvest in other loans or cash out.Įach P2P lending platform charges a small fee for investors. This also helps diversify your investment into different grades of loans, with different terms of maturity.Īs each payment on the loan is made, a portion of the payment (which consists of interest and principal) returns to each of the individual investors involved with the loan. You can decrease risk by investing small amounts into multiple loans rather than investing a large sum in one loan. Once the loan is fully funded (usually by multiple investors each loaning a portion of the requested funds), the borrower begins to make payments on the loan. With each loan, you can choose to fund none, some, or all of the loan. term of the loan (typically 2 to 5 years).The required minimum investment (which can be as little as $25) varies by platform.Īfter reviewing the profiles of potential borrowers, you decide which borrowers to lend your money.Ī profile includes detailed information about each loan, such as the: You only need to:Įach P2P lending site outlines the qualifications and procedures to start. Starting to invest in P2P lending is simple. PriceWaterhouseCoopers estimates the P2P lending market could reach $150 Billion by 2025. This relatively new market is growing rapidly. Lenders (individual investors) and borrowers (typically smaller companies or individuals) come together online via a P2P lending company or platform.įor borrowers, P2P lending offers several advantages over traditional lending practices: It effectively cuts out the middleman – the bank or lending institution. Peer-to-peer lending (or P2P lending) allows you to loan money directly to borrowers. If you answered yes to any of these questions, then peer-to-peer lending may be an investment strategy worth considering. Searching for an easy way to diversify your portfolio into alternative investments and achieve solid returns? Are you tired of lackluster interest rates?Ĭoncerned about the record highs of the stock market?
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