What up nomads!
Looking for more ways to make money online? I’ve already written about making easy money online with Matched Betting and how to get into Bitcoin, and following up on that theme today I’m going to discuss how I make $$$ by investing in businesses using peer-to-peer lending.
What is Peer-to-Peer lending?
It’s simple. Instead of going to bank for a loan, funds are crowdsourced. You can finance everything from individuals looking for a car loan to established companies who need an injection of capital.
Returns vary massively depending on the risk, duration, and network. (I make an average of 9% return). Typically, you are paid back in monthly installments.
Here’s a video explaining it. It also has a few suggestions for my American readers too. The 5-7% return stated seems woefully low though. Do some digging yourself. (In Ireland, for example, you’ll make 8% minimum on business loans).
Finance Businesses, not Personal Debt or Start-Ups
I don’t know about you guys, but I feel more comfortable lending money to an established company over Mary who needs a new pair of wheels. With business P2p loans, the application process is usually more rigorous because the sums involved are far larger. The returns are more or less the same, too, so why take a greater risk?
Also, when it comes to start-ups, in my opinion you’re better off just getting shares and pretending that money no longer exists. Most start-ups fail. Stick with businesses who are operating 3+ years.
I used Linked Finance as I have an Irish bank account. Check what peer-to-peer business lending sites are available in your country.
Diversify, diversify, diversify
Spread your investment across various loans with various return rates, durations, etc., depending on your risk tolerance.
I currently finance only three loans as I’m restricted with options in Ireland. All have different returns, ratings, and durations. These range from Grade A loans with an 8% return over one year, to Grade C loans with an 11.5% return over three years. On average, my portfolio sees about a 9% return.
Aside from financing several different loans, P2p lending in general should only constitute a small percentage of your online investment portfolio to begin with. Crypto, ETFs, and offline assets should all be incorporated in your portfolio.
Pros and Cons of P2P Lending
- Good returns that usually exceed the S&P 500.
- Fixed income that pays monthly.
- You can invest as little as €50.
- Costs to entry and exit are miniscule.
- Compound interest. You can re-invest your monthly earning and compound your investment, leading to handsome returns in the future.
- Very low liquidity. You get paid monthly and need to wait until the end of your loans to recoup your investment and returns.
- Risk of default. Follow the strategy above to minimise this happening, but shit happens and you may get unlucky.
- Opportunity cost. You may make a better return on Cryptos right now.
I believe P2p lending is a great addition to any portfolio for the medium to long term. Currently 10% of my portfolio is parked in p2p and I’m making a respectable return.
Any thought or questions? Leave them below!