Peer to Peer lending is a way to give loans to people who need them at better interest rates than credit cards and pay day loans. Credit Cards charge about 19 % interest and Pay Day Loans charge about 100% interest over the course of an year.
I heard about this phenomenon in 2006 and it is getting big time nowadays.
The way it works is that usually a company like “Lending Club” finds people who are ready to invest money and connect with folks who need them. They do background verification and all kinds of credit checks on both sides to ensure the loan is safe and given to the correct folks. Lending Club has a website – www.lendingclub.com where one can borrow money as well as invest money. Lending Club acts like a broker and they take a small loan origination fee.
There are indeed a lot of restrictions on how you can invest in this Peer to Peer lending. I want you to read them first.
Here are some of the restrictions from Lending Club, the #1 Peer to Peer vendor.
“I currently reside in one of the following states: CA, CO, CT, DE, FL, GA, HI, ID, IL, KY, LA, ME, MN, MS, MT, NH, NV, NY, RI, SD, UT, VA, VT, WA, WI, WV, or WY;
I have an annual gross income of at least $70,000 ($85,000 if residing in CA) and a net worth (exclusive of home, home furnishings and automobile) of at least $70,000 ($85,000 if residing in CA); or a net worth of at least $250,000(determined with the same exclusions) ($200,000 if residing in CA), OR, if I live in Kentucky, that I am an “Accredited Investor” as determined pursuant to Rule 501(a) of Regulation D under the Securities Act of 1933, AND,
I will not purchase notes in an amount in excess of 10% of my net worth, determined exclusive of my home, home furnishings and automobile and if I live in California and do not satisfy any of the above tests, I will not invest more than $2,500 in Notes”
Prosper is another website that does the same. They were one of the first ones to get into this business although lending club is the biggest one today.
Compare Lending Club vs Prosper
The website - www.lendingmemo.com has lot of information about such Peer to Peer lending. I suggest you spend some time to understand the risks before jumping into invest in any of the Peer to Peer lending websites.
This is certainly an alternative investment compared to stocks and your “nothing-paying” savings account.
I haven’t researched much into this but will do more as time goes by. Of course, I get better return rates in my investments in stocks so this is not so lucrative for me. But for others, who are hesitant to invest in stocks, this is relatively a better alternative.
Again, please read more before you invest in anything. It is only in a slot machine in vegas, where you could make money by spinning a wheel, in all others you will have to do your groundwork before jumping in.