How to Use Peer to Peer Lending

Peer to Peer lending, often called P2P lending, brings together private lenders and borrowers for personal loans backed by a credit union. Lenders can receive higher interest rates on their loans than they would in a typical bank savings account, and borrowers can often borrow money for much less than typical interest rates. Peer to peer lending has risen in popularity as more people become aware of the benefits and turn to established and successful social lending sites online to learn more. Here's how to use peer to peer lending.

Instructions

Peer to Peer Lending: Loans to Make Money

1. 

   Research peer to peer lending sites and consider your own risk levels to decide which site will best fit your approach. On Prosper.com, you can set your own interest rate and hand pick loans that meet your risk level. However, the loans are not guaranteed and your borrows could potentially skip payments or default. On Zopa, the interest rate you receive is already set, and is generally lower than on Prosper, but your loans are guaranteed and backed by a credit union, so you won't lose money.

2. Sign up for a lender's account on the peer to peer lending site, filling in your personal information and desired loan investment amount.

3. Choose who you will help with your loan if lending through Zopa. You have to choose at least one person, and can browse the profiles to find borrowers to help.

4. Pick the loans you'd like to make at Prosper, weighing the risks with the interest rates. The higher the interest rate you'll receive, the more the risk, so proceed carefully and make sure the loans fit your level of investment risk. Diversify your money across several loans to minimize risk.

5. Fund your lender's account with money from your bank or financial institution.

6. Complete the loan process to fund the loans you've chosen, or in the case of Zopa, to fund your guaranteed CD.

Getting loans with Peer to Peer Lending

1. Sign up and build a profile at a social lending site, such as Zopa.com or Prosper. Add a photo and a description that mentions why you're borrowing money and how serious you are about making all of your payments, on time.

2. Enter your social security number and income amount as well as other details required by the site. Your income will be verified, so enter your most reasonable estimate or average.

3. Submit your completed profile. On Zopa, the decision as to whether or not to lend you money will be made by a review of your information and whether or not you are determined to be credit worthy. On Prosper, lenders may elect to lend you money even if you have poor credit.

4. Stay in contact with your lenders, making all monthly payments on time once your loan is funded. If you used the loan to consolidate other higher-interest debts, cancel those other accounts and take on no new debt, which would hamper your ability to pay back your new loan.

Tips & Warnings

• Learn about the borrower's risk rating on Prosper before lending your money.

Resources

• Equifax 3-in-1 credit report