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What to Know When Investing Via Peer-To-Peer Lending

By Nicolas Moore | July 29, 2022

Have you ever thought about investing through peer-to-peer lending apps? 

Peer-to-peer lending offers a unique form of investing that gives you a new opportunity to turn a profit on your money. Instead of sticking to traditional forms of investing, you can change it up to take some of the conventional risks out. You can start investing in peer-to-peer loans and see a return on your investment quicker than most other investments.

With peer-to-peer lending, there are some things you need to know and consider before putting all your money into one opportunity.

What is peer-to-peer lending?

If you are still learning about peer-to-peer lending, you are not alone.

Peer-to-peer lending is an investor-backed loan where all the money comes from investors instead of a bank. Since 2005, investors have been financing these microloans that are helping borrowers pay for what they need. This type of lending is much like someone loaning money to a friend, but there are peer-to-peer lending platforms like Lendee that act as the mediator to manage the entire process. Instead of trusting the borrower solely, there is some help from the platform that helps manage everything. 

This type of lending is unique because the investors are backing the loans instead of a larger financial institution. That allows peer-to-peer loans to have more flexibility than traditional ones, allowing borrowers to get different loan amounts. Often, banks will not loan people less than $5,000 because it is not beneficial for them to do so. 

Instead of forcing borrowers to take massive loans that are difficult to pay, peer-to-peer microloans offer smaller amounts more applicable to certain situations. Loans have been a cause of stress and worry for many borrowers since they are so large and have rates and fees that add to that stress. With microloans, there is a new chance for borrowers to make the most of their financial help.

Peer-to-peer lending also offers a unique opportunity for investors to invest in something other than stocks. While the borrower gets a smaller, more flexible loan, investors have the chance to profit from the loan and figure out terms that benefit them. Investing in these loans offers more flexibility in payment terms, allowing you to determine when you get your money back. 

Both investors and borrowers have new and unique opportunities with peer-to-peer lending.

How to invest in peer-to-peer loans

If you are interested in peer-to-peer lending, you can start quickly by finding a trusted microlending platform that facilitates the investing process.

The first thing you need to do is create an account on the platform and start finding borrowers. That is the first step because you have to connect with borrowers in need first so you can start figuring out how much you need to invest and where. 

Each borrower will have their reason for the loan, which gives you an idea about what you are funding. Seeing what they need the money for is helpful for you to figure out the risks involved with the investment. Also, you can see how your investment will help borrowers and their situation.

Once you choose the person you want to invest in, you can start setting up the terms for their loan. As the investor, you get to decide how long they will have to pay you back and the fees involved with the loan. You can make the payment term short for a short-term investment or longer if you do not need the money quickly and want to help the borrower. 

When setting the terms, you choose how much you can profit on the investment because you set the fees. You can consider the risk and loan amount and then decide how much they will pay you back. 

Peer-to-peer investing gives you many different options to turn a profit in a short amount of time.

Things you should consider when investing via peer-to-peer lending

Even though peer-to-peer loans are a great investment opportunity for you, there are always things you should note about them. 


When you invest in anything, you need to be mindful of the various tax implications you will deal with when you profit.

If you profit from any investment, you need to report any of that income on your tax return via the various forms the IRS requires. While profit is excellent, it is necessary to consider everything that will come with your invested money. Instead of just investing your money and not thinking about what comes next, it is crucial to think ahead. 

Once you start investing, you can see how much you profit and if you want to try for more based on how much money you will owe on your tax return. 

Taking on risk for profit 

Whenever you decide to invest in anything, there are always risks that come along with the process.

Investing in microloans is no different and still has small risks to address before you pursue it. The most significant risk is someone defaulting and not paying back the loan that you are funding. Defaulting borrowers is not super typical with peer-to-peer lending since there is software that manages them to make sure they pay, but it can still affect the borrowing process. 

When you invest, be prepared for the risk involved, even with something as simple as peer-to-peer lending. 

Necessity to diversify

A significant aspect of investing in peer-to-peer loans is diversifying your portfolio.

It is necessary to diversify your portfolio because you want to be sure your money gets invested in multiple places rather than just one. That is standard practice to take some risk out of the equation, so if one investment fails, you do not lose all your investment money. If you want your assets to be successful, you need to diversify your portfolio to make the most of your efforts while worrying less. 

How to choose a borrower

An essential aspect of investing in peer-to-peer loans is choosing a borrower. 

You can start by looking at their information, such as their credit score or debt-to-income ratio. Information like this will help you decide if the borrowers are worth lending money to because it will tell you how much risk you will take. 

Then, you will need to see why they are looking for a loan and decide if that is a good enough reason for you to lend them money. If the borrower has a good reason for why they need the money, they might be a good choice for you to invest your money because you can know you are supporting someone’s great cause. 

Choosing a borrower is difficult but can be done when you are patient and consider each borrower’s situation accurately. 

Setting goals for investing

A practical way to be successful in investing is to set goals for how much profit you want to make and how long you want your investment to last.

When you start setting these goals, you can avoid a lot of risks and have a plan for exactly what you want to achieve with your investment. Without goals, you might leave your money in an investment long after it is profitable and potentially lose money if that goes too long. 

Setting goals is also great for improving your mindset about investing and keeping you optimistic through the process. Sometimes, you might be doubting your investment strategy, but you can always reflect that you are sticking to your already set goals.

Start your journey as a microloan investor with the best app to invest money

If you want to start investing via peer-to-peer lending, Lendee is here to help you get started immediately! 

Lendee is a peer-to-peer lending app that connects investors and borrowers, facilitating the entire microlending process. When using Lendee, loans range from $100 to $2,000, allowing you to loan any amount within that range or multiple loans if you choose. 

The best thing about Lendee for you as an investor is that each borrower receives a Lendee score that can help you determine the risk each borrower carries. Lendee scores help you make the best investment decisions. 

Download the Lendee app to sign up and get started today.