Continuing from my last “Income from Home” post on becoming an Amazon seller (I woke up to 5 orders this morning, it was quite nice), we’ll talk about peer-to-peer lending sites, mainly Prosper.com.
Technically, this is not “generating income from home” since it doesn’t count towards monthly income, but I’m including it anyway. One facet of financial independence is providing for your future, regardless of which age you are. One of the things we’ve decided to do is get into peer-to-peer lending. We’re just trying it out on a very small scale, so it’s not like I can say I’ve been doing it for years and YES it’s great but I’ve done my research and I think it is a potentially viable way to make long-term investments. There’s several different peer to peer lending sites although I’ll just talk about the main two today, since with something like this I’m gonna go with a site that’s a little more established and trusted.
What is Peer-to-Peer Lending?
Peer-to-Peer lending is basically where you and a bunch of other investors pool your money together and give loans to people who need them. There’s two nice things about it. One, you can generally start lending with very small amounts – as in $25. And two, you make quite a bit more interest than you would sticking your money in a CD, because there’s no bank to be the middleman. Peer to peer lending sites generally take out their portion, but it isn’t anywhere close to what a bank keeps when you give them your money to invest.
So here’s what we’ve decided. We’re going to take a little money, no more than $500 over the next year, and invest it in some loans. I’ve already started, and it’s looking pretty cool so far. There is obviously a risk there, because if the person decides not to pay their loans then you are kinda SOL. Having said that, one “benefit” of the economy being where it’s at and the new credit card regulations that came about a few years ago means we’re seeing people with great credit and stable income having their credit card interest rates increased to 30%+. Those people are now looking to refinance and consolidate debt to lower the interest rate and pose a pretty low risk. There are also some higher risk loans which obviously pay more as well.
My thought is I’ll start off with just doing the most non-risky loans and see where that takes us. If I make 6% on my money that’s a heckuva lot more than I’d get having it sitting in a savings account.
Which Peer To Peer Lending Sites?
So where am I going to do this? There’s a two major companies that do this. There’s Lendingclub.com and Prosper.com. I personally went with Prosper as per a recommendation from someone who has been there for a few years, but my research tells me Lending Club is just about as good so I intend to try out both. Peer to peer lending has had some problems in the past, but they have come through it and I noticed in my research that most of the time, people who had bad experiences with it had gotten started when it first came out and there were a lot of glitches to work out. I will give an honorable mention to Kiva.com, but Kiva does not actually give investors the interest in return, so it is more of something you would do to help someone out as opposed to trying to make some investment income.
My Peer-To-Peer Lending Criteria
In order to minimize my risk, I’ve chosen the following quite strict criteria to start off, which I think is pretty conservative. I have one loan in process with these guidelines, and I’ll be getting a little over 9% on my investment. I may loosen up the criteria a little as I get going, but for now I will stay pretty strict. Here’s my criteria:
- Consolidation loans and rental home repair loans only. I don’t lend for things like weddings or cars, etc., but only for things that will provide for an improvement on the borrower’s bottom line.
- They need to be employed at least 2 years
- Debt-To-Income has to be under 30%
- No current delinquencies
- Max 3 year loans
- Credit Score above 680
- At least one previous loan with Prosper, repaid in full with all payments on-time (minimum of 12 payments, since some people take out loans then repay them quickly, which doesn’t make any money for the investor)
- Only AA, A or B rated loans as per the Prosper loan rating scale
So, if you are interested (lending OR borrowing, really), feel free to click the ad below and join. I’ll get a little kickback if you do, which will help us even further along our goal 🙂 You can get started with as little as $25 like I have, which is kinda nice because interest rates like those are not easy for people who only are able to invest small amounts at a time.
And that’s it folks! Click here to see my summary – Multiple Income Streams Summary