Investing with your bank may have been quite disappointing recently. Zero interest rate policy has brought us to the moment in which earning well with your bank has become almost impossible. Luckily, somewhere in the background of this fall, there was also some revolution going on. In effect, the appearance of Peer-to-Peer lending has saved many individuals who still want to invest their money and have good benefit from it. By investing in P2P lending, your returns can be even 500% higher than you can achieve from your deposits rates. Apart from this, peer-to-peer lending has yet another advantage – it depends on traditional stock and bonds market to a very small extent.
How does it work exactly?
Peer- to-Peer lending works through the use of online platforms. By means of such a platform, individual investors may become some sort of a bank and make loans – both personal and corporate. What is significant here, the possible risk and gains are very much visible and certain. To start, you choose the platform which you want to work with as there is a wide choice of them (depending on various business models). Lending Club is the most popular on this market. The process of application to get your Lending Club account is very short and work with this platform is really convenient.
I have already opened the account, what is next?
- You must be prepared to put a proper amount of money on the account. We suggest $2,500 as a minimum to give you an opportunity to diversify a risk across a higher number of loans.
- Set a maximum size of loans. With $2,500 available, making the limit of $25 per loan will mean that you become a bank for 100 borrowers. This is a very good strategy to minimize the risk and losses.
- Choose your borrowers. You can choose who you want to lend your money to. Lending Club lists borrowers so that it informs you about the potential risk. Borrowers are divided basing on certain criteria assessing their creditworthiness (for example, credit ratings). There are seven borrower categories – from A (the highest quality)to G (the lowest) and you can choose the category which suits you the most. As many lenders do, you can decide to lend money in all categories – the majority in the higher quality group and the lowest risk, and the rest in the categories of higher risk, but with bigger profit as a reward for taking the bigger risk.
As you can see, you do not have to be dependent on your bank, especially now, when the profit you can get is so low. Instead, you may become a bank yourself. Even if you decide to invest in only high-quality loans, you may still receive five times more than in the case of the benefits offered by your bank. The wide variety of P2P platforms allows you to find the most suitable option for you. Stop being committed to your bank which used to make you gain so much return. There are great innovations to help you start managing your investment money well again.