Lending money online is an excellent way for individuals with extra money to earn supplemental income. The passive residual earnings that a lender can accumulate during a year of online lending are exponentially higher than the amount they would receive from leaving the same amount of money in a savings account. This is because, according to Financialsamurai.com, savings account interest rates are currently less than 0.1%, whereas many loan fees can provide 10% or more in profits.
How Does Online Lending Work?
With regard to online peer-to-peer lending, an investor acts like a bank or other loan provider, delivering loans to individuals and businesses in need. Lenders must diversify their loan investments to maximize profits and protect their finances. In other words, when lenders provide small loans to many borrowers, they can limit the economic effect of having a borrower default on their payments and maximize the possibility to profit based on the fees charged to each borrower. If a lender loans all of their spare money to one borrower, and that borrower defaults, they lose all of their money. However, if one of their many borrowers defaults, they might still break even or continue to profit because the other borrowers are not only repaying their total loan amount but also the fees associated with their loans.
How Does Online Lending Benefit Borrowers and Investors?
Traditional loans are challenging to acquire because there are a number of obstacles that borrowers must overcome before even being considered. Notably, borrowers must have impeccable credit, a stable and well-paying job, and collateral to offer up if they default on loan payments. During economic downturns, banks are less likely to offer loans that pose a risk to their companies, restricting access to many in need. It is easier for borrowers to obtain financing through strangers online than big banking companies. There are less strict requirements and more loan options available to borrowers when they seek out financing through their peers.
Borrowers can obtain loans quickly through online lending. After providing straightforward personal and financial information, borrowers will be able to discover available loans and receive lending offers. It can take a day or less for many borrowers to find loans with variable fees and requirements, requesting those most desirable to them. Alternatively, it can take days or weeks to get approved for a loan from a big bank.
It may also be cheaper for borrowers to take out. Banks and other financial establishments must pay for workers, power, rent, and more. Because it is costly for these businesses to stay open and continue profiting, they must charge borrowers debilitatingly high fees and interest rates. Therefore, when borrowers can secure loans through big financial companies, they must pay unrealistic costs. Online peer lenders charge much smaller rates to borrowers because they have the financial flexibility to do so.
It is simple for lenders to start offering peer-to-peer microlending online. Lenders must initially provide a relatively small amount of personal information, composed of their: name, social security number, telephone number, and email address. Additionally, some states or micro-lending companies require lenders to provide income information to prove that they meet the minimum income needed to loan money to others. From that point, lenders can immediately set loan prerequisites and match with potential borrowers. Some microloan websites offer automatic loan investments. Essentially, lenders can set up their account, add funds, set any terms they want the website to follow, and have their money invested in notes or provided via multiple loans between separate borrowers. Other websites give lenders the ability to manually select borrowers to receive their loans. In either case, it takes only a few hours to set up a lending account and even less time to manage a lending account.
Individuals who choose to lend online have the ability to profit greatly. Unlike big financial businesses, individuals who can offer loans online have few business-related bills to pay. While some companies take a small percentage of lenders’ earnings, others offer their services for free and enable lenders to keep all of their profits to either reinvest or withdraw. By reinvesting, lenders’ profits can multiply quickly.
Online lending enables investors to control their money. Companies such as Lendee enable lenders to determine their own destinies. For instance, lenders can set specific requirements which borrowers have to meet to qualify for their funds. Lenders also get to determine the costs and types of fees that they want to charge borrowers. They get to choose to whom they want to lend money. This autonomy is beneficial because if lenders decide to offer lower fees and more accessible loans than other loan-providing companies, they are more likely to obtain borrowers’ business.
Ways to Make Money via Online Lending
Based on the above information, online lenders should look for simple-to-use and safe companies to offer loans. Through the online lending service Lendee, investors can quickly get returns on their monetary investments. Lendee does not require investors to provide their financial statuses or annual incomes. The company does not take money away from the total profit of lenders, meaning that they can keep 100% of the fees they earn from providing loans. Lenders using this company can view the Lendee scores of prospective borrowers and determine if they are a good match. These scores are based on borrowers’ credit and spending habits. If a borrower has a low Lendee score, reflecting poor credit, a lender may decide to loan money to that individual, charging higher fees to protect themselves from default and earn more money for taking a considerable risk.