Peer-to-Peer lending (P2P) also known as social lending is a way for people to borrow or lend money without going through a bank. The main P2P site is Prosper.com. Another P2P site, Loanio, just recently launched. Lending Club is another P2P site but it is not currently accepting new lender registrations or loan committments and its future is uncertain. To get a good idea of how these sites work read the faqs and overview articles on their sites.
These sites can be a good way to make extra money and have worked out well for me. I have nine loans with Lending Club and two with Prosper and haven’t had any late payments or defaults yet. The average interest rate on the loans is over 11% which compares very favorably with the negative return of my stock investments. Some people view these loans as risky but I don’t think they’re overly risk for the return on investment. If you just want to keep your money safe you can put it in an ING Direct or FNBO Direct savings account. You’ll only recieve 2.75% APY or 3.50%APY though which doesn’t compare well with the over 11% returns available from P2P lending.
I haven’t invested much in P2P loans yet because I wanted to see how they would perform. It has only been ten months since I started making loans but I’m pleased with the results so far. I’ve seen other bloggers who’ve had bad results. I made loans mostly to people with high credit grades and relatively low debt to income ratios which seems to have helped reduce my risk. Or maybe I’ve just been lucky.
I plan to invest more in P2P loans once I start making extra money. The monthly payments would work out very nicely if manage to retire early.
The $25 referral bonuses the P2P sites give is also a nice source of income. I’ve already made more in bonuses than I’ve invested in loans so I’m kina freerolling now. If you’d like a referral for a $25 bonus send me an email or leave a comment.