Passive income can be a terrific way to generate extra cash flow. It can help you to secure your financial future in multiple ways. People make several investment choices without exerting too much effort and time, and one of those choices includes P2P or peer-to-peer lending. Learn all about it in this blog.
First, let’s look at what passive income is not:
- It’s not the income you earn from something you’ve been materially involved in, such as your wages from a job.
- Getting a second job doesn’t qualify for a passive income stream since you still need to show up and do the work to get paid for it.
- Non-dividend paying assets or stocks such as cryptocurrencies may seem exciting but won’t count as your passive income.
What’s P2P lending?
A peer-to-peer loan is a money loaning process between the lender and the borrower, facilitated through a third-party intermediary such as Lendee.
Peer-to-peer lending platforms directly connect investors with borrowers in need of financial help, giving lenders the option to earn higher returns on their investments.
How to earn through P2P lending?
Lenders receive the money they lend in the form of equated monthly investments (EMIs), including both the principal and interest money.
A P2P lending platform collects EMIs from the borrower on behalf of the lender and adds them to the lender’s escrow account. The lender can choose to either withdraw or reinvest that money.
P2P lending allows lenders to build a diversified investment portfolio and earn high and stable returns. However, it can be time-consuming to build a portfolio that reduces the risk of default by spreading investment across different risk profiles, occupations, demographics, and others.
How do earnings from P2P lending become your passive income?
In simple terms, passive income includes regular earnings from sources other than your employers or contractors.
Peer-to-peer lending earnings can become your passive income through the smart investment decisions you make.
Lenders earn income from the loans they invest in through EMIs that are credited to their escrow account on the platform each month. Either they can withdraw the EMIs or reinvest their income in other loans listed on the platform.
When the lenders choose to reinvest their money, they:
- Avail the benefit of compounding returns – Some insights show that lenders who reinvest earn up to 10% more returns than those who don’t.
- Considerably reduce time and effort – When lenders activate reinvestment, they ensure that their monthly earnings get automatically reinvested in the same product or plans they’ve selected, continuing to generate returns for them. They don’t have to spend extra time investing in those funds.
2. Automated Investment
Peer-to-peer lending platforms offer automated investment options to reduce time and effort in building a portfolio for lenders. Instead of spending time studying and selecting each borrower profile, lenders can choose to add funds to automatically invest according to the parameters most suited to their investment strategy.
The algorithm automatically builds a portfolio for lenders by matching their investment objectives with borrower profiles listed on the platform.
Automated investment is a great way to save time and effort on earning passive income with P2P lending.
3. Systematic Income Generation Plans
The most efficient and time-saving method of investing in P2P lending is when multiple investors pool their funds into a single portfolio to achieve efficiency in portfolio building and management.
The pool uses artificial intelligence (AI) and data science to build and manage a portfolio with the potential to deliver higher and more stable returns.
The only action lenders need to take is to add their investment amount and authorize the platform to disburse it. The platform’s algorithm disburses the pool money into a diverse mix of loans and loan products with a repaying capacity to offer higher aggregate returns.
P2P lending platforms are one of the best sources to earn passive income, and if you want to invest money online right away, download the Lendee app today.