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What Is Microloan Investing And How Can You Make Money With It?

By Nicolas Moore | January 18, 2022

In the realm of peer-to-peer lending, you might have heard of microloans and wondered ‘what are they?’

Microloans are small loans that are offered directly from an investor to a borrower. These are known to be helpful for individuals that need financial help but may not need a full loan from the bank.

Since these loans are offered through peer-to-peer lending, that means investors are funding the loans directly to the person borrowing the money. This creates a unique opportunity for investors who want to take a risk and make money while helping people out at the same time.

What is Microlending and how does it work?

Microloans are small loans that people can lend to each other for a multitude of needs. They can be used to lend out smaller amounts of money people might need for a big purchase. Since these loans stem from peer-to-peer lending, someone is directly lending the money to the borrower rather than a bank.

Microlending is popular with those who do not normally qualify for a loan at a bank or do not need to borrow enough money to warrant a loan. When someone needs to borrow $200 here or $400 there, banks will not give them loans because of the complicated fees and the long process it takes to get a loan. This is where microloans come in and benefits those people because they have a new opportunity to borrow the smaller amounts of money they need. They might receive higher fees if they have a low credit score or poor repayment history, but they can still secure the line of credit needed.

Microloan investing is done fully online. Many websites specialize in microlending and help to facilitate the process of collecting investors’ money as well as connecting the investor to people who need it. These sites help to check the person requesting the loan and figure out their payment history, which determines the risk that the investor will take when lending them money. These micro lending sites are important because they handle all of the work for the investors and their borrowers.

Microloans offer good returns for investors, which is how they can profit from participating.

How to Profit from Microloan Investing

It may seem a bit daunting to start investing in Microloans, but it can be easy and quite profitable for those who are willing to try it. To start investing, you must find a website that specializes in this kind of lending, such as Lendee. Then, you can decide how much you want to invest.

Once you have invested and get paired with the borrower on Lendee, they have to pay you back just the same as they would with a loan from a bank. This is where you will begin to profit in the investment process. With Lendee, you as the investor get to set the fees charged to the borrower and the terms if they are late on a payment. Between the fees and duration of the loan, there will be the opportunity to grow any investment.

With Lendee, everyone borrowing money goes through a credit check and a background check of their spending. Between these factors and the application, they are given a Lendee score that is the same value as a FICO score, which is out of 850 maximum points. This way, the investor can set parameters to only get paired with borrowers that have a certain Lendee score. Investors can also look through a list of people trying to borrow money and decide which person they are willing to lend money to.

Based on their score, the investor can then decide how high they want their fees to be so they can profit when the person pays them back. That way, if the borrower has a low score, they can set the fees higher if they choose just in case they default. Although defaulting on loans is a very rare occurrence, it is up to the investor if they want to worry about that or not.

To try and get rid of any risk, many investors do not invest one large amount of money to one borrower, but instead, they try to spread multiple small investments amongst people. This way, if one person defaults or misses a payment, they still have multiple people paying them back with fees to continue the cash flow going. Building a portfolio like this is the safest way to invest and still profit from it.

How Microloan Investing Can Benefit Families

Microlending has the potential to be used amongst family members if money needs to be loaned.

Many people have experienced family members asking them to borrow money. It seems that more often than not, the family member takes the money and it is never seen again. They have no recourse for their actions and it becomes difficult to try and collect the money from them since it could make the family dynamic change drastically.

Using apps like Lendee, you can lend money to family members and set up a payment agreement through the app that they would have to agree to for the money to be loaned to them. This way, the terms are set and the collection process is handled through Lendee and not solely from you. Since you as the investor choose the fees, you can even charge no fees if you want since it’s family, or a much smaller fee to help them out. It could also grow their credit score while they pay you back, making it beneficial for everyone.

You could find profit in this because you are helping family while also charging small fees. This could be just one of your investments amongst others that you have through Lendee, thus multiplying your portfolio and bringing you more money.

Apps such as Lendee have the potential to help families stay whole when lending money to each other in times of need.

Use Lendee for your Microloan Investing

Microloans help many people every year because they allow investors to connect with borrowers that need the help, benefitting all parties involved.

Lendee is a great tool whether you are looking to invest in microloans or borrow one yourself. Offering peer-to-peer lending, Lendee can help facilitate the connection between borrower and investor. The tools that Lendee offers are very helpful and can help investors to make the most out of their money.

Lendee takes care of all the hard work by handling the acceptance of payments for you, the collections if needed, and monitoring all of the investing processes for you. With Lendee, you can be confident in your investment and the profit that will come from it.

Check out Lendee’s services today to learn more!