It’s becoming fairly common for several individuals with spare capital to look for investment opportunities as lenders. Seeing how much banks and major lenders make from their loans is another reason several individual cash and asset holders are interested in lending money, hoping to make a profit from their interest payments over time. This blog can help you learn about the three methods to become a lender, all thanks to new technology that allows lenders to invest through lending platforms and gain good returns on the money they currently have parked in low-interest bank accounts.
Three ways to become a lender
Method 1 – Research the lending process
It’s crucial to know about the steps involved in money lending.
1. Collect your capital – To get the best results, you’ll want to collect all of your lendable funds in one central account. It’ll also make it easier for you to decide how much money you can lend without negatively affecting your own household budget.
It’s always better to be prepared for worst-case scenarios, meaning you should lend only the money you can do without since there’s always a likelihood of the borrower not paying you back.
2. Understand your loan goals better – You’ll want to look at several factors before actually getting into lending money, including how long you want the money to be tied up and how much you want to make from it. You’ll also get to narrow down your lending choices further in the process.
3. Look at the tax burden your investment entails – Experienced investors understand that every investment has a tax burden, and lending is no exception. So just like other investors, you’ll have to pay taxes on income from interest payments, which will get deducted from your gross gains.
Method 2 – Evaluate microlending
Learning about microlending is always recommended before you get into it.
1. Research microlending – For all would-be lenders, the best way to effective lending is via micro-lending platforms, also known as peer-to-peer (P2P) lending. There are sites and apps to lend money, helping small lenders find borrowers interested in getting financial help.
Take a look at some of the microlending platforms and familiarize yourself with all their terms and conditions so you can avoid misunderstandings later.
With the most trusted money lending app, Lendee, you get faster and greater returns on your investments since you don’t need to split your earned interest like you would have to while using other P2P lending platforms.
If you’re wondering why people borrow money through microloans, the following points might help.
- To pay off their credit card debt at a lower interest rate.
- To start a small business or expand the one they already own.
- To finance a creative project, such as a movie, music, art, and others.
- To finance a wedding, home/car repair, and consolidate other loans.
2. Assess how micro-lending platforms rate borrowers – Big lenders often rate borrowers based on their answers in the questionnaire. Similarly, micro-lending platforms assess the borrowers, helping lenders match them based on their desired level of risk.
Usually, you pick a basket of loans and bet that majority of them won’t default or not repay. Riskier borrowers mostly get charged a higher interest rate.
3. Seal the deal – You should be able to seal the deal through microlending platforms using their proprietary tools and paperwork once you have your desired loan receipts picked out.
You’ll officially become a lender and will be able to collect income payments to expand your investment portfolio once done with all the formalities.
4. Consider joining a lending club – You can invest in notes or portions instead of lending money to a single borrower. You can spread your investment across multiple loans, while the borrowers’ loans get funded by different investors.
Method 3 – Research the pros and cons of microlending
Learn about the benefits and drawbacks of microlending to make the right choice.
1. Evaluate the benefits – One of the main benefits of microlending is returns on your investments ranging between 5% and 9%, which is a lot higher than what you’d get from a savings or a money market account. These returns include a 4-5% default rate and 1% in fees from the microlending platform.
Microloans aren’t tied into the stock market, so even if the market plunges, you should still get good returns on your investments.
2. Examine the risks – One of the apparent risks is borrowers defaulting on the loans. Microloans aren’t secured loans like other traditional options that typically require guarantees or collateral. Besides, borrowers can file for bankruptcy, causing you to lose your investment.
3. Consider using an automated investing tool – Selecting individual borrowers can be time-consuming, so consider choosing an automated investing tool. You need to select a mix of loan grades according to borrower risk and set the amount for each loan.
The investing tool will automatically invest in loans for you and send a daily report online.
Whether you are a beginner or an experienced investor, peer-to-peer lending is a great way to put your money into circulation.
It can get confusing to choose the right money lending platform. So we suggest you visit www.lendee.com or download the Lendee app to learn more about this trusted money lending app that gives you instant access to a network of borrows and investment opportunities.