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Discover how to invest in p2p loans the safe way.

What is peer to peer lending?

Peer to peer (p2p) loans is “direct” loans between a borrower and a lender. In the past loans were exclusively provided by banks or big financial institutions, today with p2p lending anyone can be a lender. Lenders earn a passive income in the form of interest and capital repayments.

There are many different types of p2p lending. Some loans have collateral others do not; The collateral can vary from property to art or gold. The loan term can range from some are for a few weeks and others a few years. Learn more about the pros and cons of p2p lending.

What is the relation between peer to peer lending and passive income?

Lenders take a risk when they lend money; they are repaid for the risk they are taking in the form of interest. The repayments of capital and interest are what generates the passive income.

Peer to peer lending is passive in the sense that to lend money directly or through an auto investor is passive and after that investors do not need to do anything. The loan will generate interest and at the payments should come in as per the repayment schedule. That is if all goes well and the borrower pays on time and the specified amount.

Which companies offer peer to peer lending?

P2p lending is now a global business model; you will need to research which are reputable and trustworthy platforms in your country which allow lenders and borrowers to connect.

In the Uk some of the most popular platforms are Zopa, Ratesetter in Europe it is Mintos and in the USA Lending Club and Prosper.

Understanding your financial situation:

Before you make any passive income investment, it is essential to understand how does a passive income asset fit in your investment portfolio or your passive income portfolio. Such decisions need to be done with your financial advisor. In the meantime consider

  • Do you have an emergency fund for at least 3 to 12 months of your core expenses?
  • What are the next big ticket items such as a fridge, a car, a wedding or a baby?
  • What is the risk profile of your portfolio and how would a p2p investment shift that risk.
  • Consider the advantages of p2p lending and how to leverage them
  • Learn more about the risks of p2p lending and how to mitigate them

With this info it is easier to decide the allocation to a p2p portfolio, to achieve your target passive income

How to make your first p2p investment:

  1. Most p2p platforms (and markets) have restrictions on who can invest, check if the platform you researching is open to you.
  2. Research the p2p platforms in detail both by reading info on their website and other info on third party websites such as the p2pindependentforum.com. Learn about the particular risks of each of the loan types. In particular, find out how each of the loans affects your passive income revenue.
  3. Find out if the platform is registered with the financial services regulator in their country of registration. Such as the company house in the UK.
  4. Research the company and the directors by Googling their names and pending court cases. For example “name surname” site:.gov.*
  5. Email the platform or even better call them, ask questions, learn more about the specific loans you are interested in and if they have any promotions now or in the pipeline.
  6. Observe the speed by which loans published on the website are subscribed to. Is it fast or slow? P2p loans on the lender side have become very competitive if loans are not fulfilled in hours then, you should investigate more on why this is the case.
  7. When you are satisfied with researching your new stream of passive income, consult a financial advisor.
  8. Deposit a small fraction of your funds
  9. Make an investment observe it. The length of this process is entirely dependent on you; the more comfortable you are, the shorter.
  10. Withdraw a fraction of your funds back to your bank account and see if this works.
  11. When you feel more confident about their system add some more funds and repeat the process.
  12. Learn how to use the auto invest in both the primary and the secondary market and explore some of their details on the secondary market.
  13. Keep on top of any information about the platform and the p2p sector.

Conclusion

This article has given you a pretty good basis on how to start an additional stream of passive income. In the comments below let us know your thoughts and suggestions!

Not investment advice. Not financial advice. Consult your financial advisor. Not a recommendation to buy, sell or hold. The staff of this site may own this digital asset/s mentioned on this page. Investing is risky and you may lose all your capital. See full disclaimer.

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