How to Make Passive Income Lending Money To People

Peer to Peer lending platforms, like Prosper and Lendingclub, are a popular option these days among borrowers and investors alike. For borrowers, strict rules hold them back from acquiring financing from banks. On the flip side, peer-to-peer lending offers investors the potential for higher returns from a diversified pool of borrowers. For seasoned investors, giving loans to people like you and me also offers typically low stock market correlation. Lastly, it kinda feels good to deprive banks of some of their revenue and make easy money at the same time.

How It All Works

So how does investors make money from peer-to-peer lending? The same way banks make money when they lend to their borrowers. You’ll charge interest to the borrowers with pre-determined interest rates on an annual basis. The P2P lending platforms like Prosper and LendingClub work as mediator between the borrowers and the investors. The concept of profit making with P2P lending platforms is similar to that of banks with the exception that these platforms are online only. Borrowers pay interest on their loans, the investor collects the interest as profits and the platform charges a fee to both parties.

Essentially you are making money by giving out loans to others. Unlike direct lending, you may not know your borrower personally. The…