Investing Fundamentals

How Exactly Does Peer to Peer Lending Work

Table of Contents  

Peer to peer lending can be a great way to make money for lenders and for borrowers to get help without using a bank.  We’ll explain how it works.

Peer to peer lending is basically crowdsourcing loans. Crowdsourcing or crowdfunding, means getting a bunch of people together to create something. Kickstarter  is a crowdfunding site that allows creators to raise money for different projects.

In the past, if you wanted a loan for a house, car, home repair, and consolidating credit card debt, you had to go to a bank and apply for a loan.  The bank could approve or deny based on your credit history, how much you make, and what your overall financial situation looked like.

Now, sites like Lending Club put the big scary banks aside and allow real humans to lend you money. As a borrower, you can now apply for a loan that could be funded by a bunch of personal investors instead of one big bank.  Just like any loan, you pay it back with interest.

For investors, this is very appealing, because they can lend a few borrow small amounts and continuously collect interest as the borrower pays back the debt.  Lending Club has collected tons of data on the borrowers which gives lenders a lot of information when deciding whom to lend to.

About 50% of LC loans are people taking loans to pay off their credit card debt at a much lower interest rate. If you are struggling with credit card debt, LC will be a great option for you.

LC works with defaulted borrowers to help get them back on track.  Their success rate is better than that of credit card companies.  LC will work with a borrower in default rather than just harassing them with threatening phone calls.

Andrew is killing it with LC, he’s averaging 18% returns.  Investing in this type of peer to peer lending is not for beginners.  There is some risk involved.  But if you have a few extra bucks to play with that won’t hurt too much to lose, give it a try.

Show Notes

Lending Club:  Crowd sourced loans.

Andrew’s Article:  Andrew details the success he has had as a LC investor.


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