How to Start Peer-to-Peer Lending

Peer to peer lending is a rapidly evolving concept where two individuals make a financial transaction in a pooled environment. To make it simple, the lenders puts a certain amount of money in a pool where it is distributed as part of different loans to multiple people. From borrowers perspective, he takes a loan where parts of money come from different individuals in the pool. Both lenders and the borrower play in the peer to peer lending platform created and administered by a company.

If you are an investor looking to diversify your investment, peer to peer lending could be an option. Nice thing about peer to peer lending is that you can start with small amount of money and the return potential is directly related to amount of risk you are willing to take. Higher the risk, higher the return. The following steps guide you through the process to start investing in peer to peer lending market place.

Difficulty: Moderately Easy

Instructions

1. Select the peer to peer lending platform that is right for you. There are several companies such as prosper, lendingclub, zopa that are prominent players in peer to peer lending market. Even though basic concept is same, the way these companies handle lending and borrowing could be little different. So, compare their operations and choose the right platform that fits your investment style. Check resource section for a comparison guide.

2. 
    
   peer to peer lending

   Select the lending model. Each company has different model for lending. Some popular models are auction based market place where loans are auctioned and family & friends model where transactions are handled as if it were between two known people. Choose the model you like to follow in peer to peer lending.

3. Decide on the initial investment amount. Since your investment money will be distributed as part of several loans in a peer to peer lending market, you don't need large money to diversify. So, start with small amount and try it out first before putting large sum in the pool.

4. Assess your risk level. This is extremely important. The rate of return on the money you lend could vary from 5% to 35% based on the risk involved in the loan. If you lend to borrowers with very poor credit, you will get very high interest rate. However there will be high chance of default as well. In a peer to peer lending market one has to always balance between return and risk.

5. 
    
   peer to peer lending

   Sign up for an account and start lending. Once you decide on the company, initial amount and risk level you are ready to start peer to peer lending. After the account is open and funded, you can pretty much do all transactions online.

Resources

• Quick guide to P2P lending platforms
• Prosper
• Lending Club
• Zopa

[jadedragoninbc]

on 12/17/2009 Interesting concept for investment.