Make Money With Peer-Peer Lending
By Richard
What the f am I talking about?
Peer to peer lending is basically what the name says; you chuck a bunch of cash into an online account and then divvy it up amongst dozens of people looking for loans around the country. You lend say $25 to each person (you and a couple 1000 other people together give that person enough money for their loan).
This is basically the capitalist version of Kiva.org.
I’m not sure how I feel about this idea.
Sure you can get rates significantly higher than traditional bonds or CDs (especially in today’s low interest rate environment), but the mathematics of it all (I’m talking about default rates here), mean that you really run too high a risk unless you can spread your money over 100s of people.
ie I think you need $5000 or more to really enjoy this and make good money consistently over the long term.
But even then you can’t be expecting to get anything more than a slight premium over industry wide bond rates for example. This is after all just a risk return equation in a fairly efficient financial market.
Also, there can be a lot of work involved if you are having to evaluate every person you loan to and when the amount your loaning is only $25 (ie so you can diversify your risk) you better say hello to your new freaking job as a loans officer!
Oh and did I mention…you also need to be a mini Roubini in order to accurately assess the economic environment so you don’t end up lending out a ton of cash just before another recession hits and delinquencies spike (can anyone say negative ROI?!).
But hey, why not have a crack at it and test out a $1000 for 2 years, with a site like the Lending Club (US residents only).