subject: Becoming A Social Lender To Make Money [print this page] Social lending has become a popular way to get financing in recent years. The government has even taken steps to regulate the industry to make it safe for investors. This means that social lending is no different than investing in the stock market. The only difference is you get to help out people trying to get on their feet. How do you make money doing something like this?
You Don't Need Much To Get Started
You only need to make an investment of $25 to get yourself into the game. Loan amounts can go as high as $25,000. Each individual decides how much they want to lend. For example, a borrower may be asking for $10,000 to start a business. You can then put in $100 toward that loan. Others will then contribute money until the loan is fully funded.
Lenders get paid each month until the loan is fully repaid. Most sites allow borrowers to pay back loans over one, three or five year time periods. Longer loan terms accrue more interest for the lender. Riskier loans can also come with higher interest rates. Expect a 10 percent return on average.
Make Educated Decisions
Investors don't make loan decisions blindly. They have much of the same information any bank would have when making a loan decision. Information such as the borrower's credit score, debt-to-income ratio and any recent delinquencies is made available. Borrowers can also list other financial information to convince people to help fund the loan.
Lenders are also made aware of the level of risk each level possesses. Each borrower will be given a letter grade to identify their risk. The type of loan being requested is also listed. This is important because different loans come with different interest rates. All of this information can be used in tandem to make an informed lending decision.
It is important to make an informed choice because borrowers may not make payments. You are then left standing with a loan that is no good. Your only option is to sell the note in the open market. It might not be worth anything at that point. The good news is that you may collect a late fee for any late payment.
Create A Passive Income
Investing your gains into new loans will create a steady revenue stream. Each loan you fund will generate interest for you. Eventually, you will make enough money from interest payments alone to fund new loans without having to invest any new money. Your money will continue to grow from there without any additional funding from you.
Looking into social lending can be a great way to make some extra money. You don't need a whole lot of money to start building up your investment portfolio. It is regulated just like a stock or a bond purchase. You will feel good knowing that your money is going to help someone who genuinely needs it. Making a nice profit at the same time will help your own financial future.
