How Much Money Can You Make Peer to Peer Lending?

Have you ever thought of trying to earn some passive income? Perhaps you’ve wondered how much money you can make peer to peer lending.

Most people earn about 5-12% annualized return on their investments. So, if you invested $1000, you would make an annual return after fees and losses of approximately $50-$120. This can vary based on what P2P lending platform you use, who you’re lending money to, and the number of lenders.

To find out more details about how much money you can make with peer to peer lending and how to get started, just keeping reading!

Getting Started with P2P Lending

The first thing to look at when you get started with peer to peer lending is the prerequisites:

  • Some states do not allow P2P while others do, but they have income requirements. Be sure to understand the requirements in your state before considering this as an income stream.
  • At least 18 years of age.
  • You cannot live in Alaska, Florida, New Mexico, New York, North Carolina, Ohio, or Pennsylvania.
  • An initial deposit of $1,000
  • Proof of income
  • 600 minimum credit score

Like everything else with P2P lending, the requirements will vary based on the platform you use and how much you’re lending. These are general requirements we commonly see across all P2P lending institutions.

How to Make Money with P2P Lending

The big question is, how do you make money?

It’s a crowd-lending strategy where you loan money to someone, and they pay you interest on that loan. The caveat is that you don’t have to loan the full amount of the note to get paid the interest.

For example, if someone is seeking $100,000 to start a business, they might get 100 people to loan them $1,000. You would be one of those 100 people involved. This group of people will then be the lenders, and they’ll all receive portions of the interest based on how many people it took to get the lendee to their goal.

This spreads the risk among all lenders so that in the even that the lendee defaults, not one single lender has to take the entire balance as a loss. This sharing of risk is what makes peer to peer lenders feel more confident.

Is Peer to Peer Lending a Good Investment?

All investments are good investments until something goes wrong. When you invest your money anywhere, there’s always a chance that you’ll lose money or never see anything in return for your investment. That can happen with P2P lending.

Anytime there is a “loan” involved, there’s always a risk. The lendee could get sick, lose their job, have bad luck, or simply stop paying the loan. When this happens, the lending platform you use will go through the process of moving them into collections and attempting to make good on the loan.

In most cases, if lendees stopped paying the personal loan, you would be out of luck, and only receive the amount that had already been paid in interest. Since that risk is spread among many lenders, a single default will not make or break a portfolio as long as you’ve diversified your portfolio with a large quantity of loans.

This is how insurance companies make money! They issue policies to masses of customers with the anticipation that the collection of policy payments outweigh the occasional claims

What Are the Top Peer to Peer Lending Sites

Here’s a shortlist of the best peer to peer lending sites with some of their requirements, interest rates, loan terms, and more.

  • Best Rates
  • APR: 5.99%–29.99%
  • Loan Amount: $4,000–$25,000
  • Loan Terms: 3 or 5 years
  • Suggested Credit Score: 600+
  • Only Available to Accredited Investors
  • Minimum Investment – $1000
  • Best for Fair Credit
  • APR: 4.99% – 35.89%
  • Loan Amount: $1,000 – $500,000
  • Loan Terms: 1 to 5 years
  • Suggested Credit Score: 600+
  • Minimum Investment – $1000

  • Best for Established Credit History
  • APR: 7.95%–35.99%
  • Loan Amount: $2,000–$40,000
  • Loan Terms: 3 or 5 years
  • Suggested Credit Score: 640+
  • Minimum Investment – $25
  • Best for Small Businesses
  • APR: 11.29%–30.12%
  • Loan Amount: $25,000–$500,000
  • Loan Terms: 6 months–5 years
  • Suggested Credit Score: 660+
  • Only for accredited investors
  • Minimum Investment – $25,000

How Much Can you Make Peer to Peer Lending?  

Per this list, some of the P2P lenders offer interest rates as high as 35% but getting those rates depends entirely on who is borrowing the money. To get those rates, you would have to take on a high-risk loan, which has a higher reward but increases the chances of you getting stuck for the money.

Think of it as loaning someone with a low credit score, bad credit history, little money in the bank, and no work history. Would you loan that person money? Maybe you would if they promised to pay you back, but you’re taking on a huge risk.

In return for taking on that risk, the lending platform charges them higher interest which could translate to higher return but only if they don’t default.

On the other side of the coin, low-interest rates go to people who are low-risk clients. They’re looking for money, and they have a history of paying it back. You loan them the money in return for a lower interest rate because you’re more confident in your chances of getting paid back in full. You might make your money back slower, but there’s more of a guarantee.

Each site rates the lendees according to their loan grade. The lower the loan grade, the higher the risk and the interest. Someone with a high loan grade benefits from lower interest but is more likely to complete repayment of their loan.

loan grades from prosper.com

Peerform is one of the most popular P2P lending platforms for those with established credit. It offers the best rates, and it allows people with varying credit scores to sign up. The better credit you have, the lower interest you get.

If the lendee is trying to establish their credit, Prosper is one of the oldest lending institutions in the country, and they’ll loan money to anyone as long as they have a 660 credit score or better. This platform is for people who may have had some issues in the past, such as repossession or bankruptcy, but they’re trying to improve their history.

LendingClub has data that shows that if you invest in 100 notes, your average returns may be between 4.23-6.01%. If you invest in fewer than 40 notes, the rate of return can range from losing 9.4% to earning 12.95%. Volatility is reduced by having a larger portfolio which makes sense!  

Don’t be fooled by the interest rates of the original loans. That will more than likely not be your return. Once you factor in the percentage of those that default, and the fees of the crowdfund lending company itself, it seems like 5% is the common expectation from the different platforms.

Who Should Invest in Peer to Peer Lending?

Anyone with money to invest, a solid credit history, and a willingness to take a risk can make money with P2P lending. It’s a great way to make passive income while putting your money to work, and you can make a lot more in interest than simply putting it in a savings account during the current economic climate.

That being said, I wouldn’t make this the pillar of your investment portfolio. Using this type of investment as a way to diversify your investing portfolio would be wiser. 

The stock market still reigns for averaged consistent returns in a balanced portfolio. If you already have a large portfolio of stocks and other investments, maybe having around 10% in peer-to-peer lending would be prudent.

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