Money Money

In lieu of the financial meltdown, individuals are finding it increasingly difficult to borrow money at a reasonable rate. Credit card companies and banking institutions have adopted stringent lending policy and procedures. At the end of the day, consumers are now facing the challenge of higher interest rates. Under these circumstances, individuals are turning to companies that offer peer money lending services for personal loans. Unlike the traditional banks and card companies, these companies can offer lower interest rates and fees. While most people use the peer money lending services to borrow money, did you know that individuals are also making money through these companies?

To be able to earn cash through peer money lending, you first need to register as a lender with the companies offering these services. Some of the more well-known peer lending companies include LendingClub and Prosper. Each company has its own set of criteria in order to become a lender; individuals should review this information carefully before signing up to lend money. Assuming you have reviewed the information and are comfortable with the risks involved, you are now free to make bids on the loans. Before lending cash to individuals, it is important that you familiarize yourself with how things are done .

The primary method peer lenders earn money is by loaning their money in exchange for higher interest. The borrower agrees to repay a certain amount of interest and principal every month within a specific time frame such as three years. To ordinary investors not familiar with peer lending, this might seem risky. After all, what if the borrower defaults? Well, in this worst case scenario, the peer lender loses the full amount he or she loaned to the borrower.

Given the uncertainty and risks involved with peer lending, what are some of the strategies that investors utilize to protect their investment? First, peer lenders diversify and spread their investment across multiple loans instead of investing everything in one single loan. Savvy investors also scrutinize the borrower’s profile, seeking those with job stability and avoiding those with little work history or high debt to income ratios. Finally, peer lenders reinvest the interest and principle received to take advantage of compounding interest.

So, there you have it. Peer lenders are finding ways to earn more than the simple interest that the traditional banks pay for deposit accounts. While peer lending involves more risk, investors are utilizing multiple strategies to generate high returns and reduce their risk. As with any investment, the key is to take the time to learn how these services operate and how money is made. Ask lots of questions from experienced investors and start with a small investment.