Lending money as an investment.

Introduction

People with some cash to spare or savings which they would like to see working for them would benefit from lending their money to people through the medium of social lending websites instead of looking for the best bank or the best stock. Of course, since you will never have met the people you’re lending your money to, the idea might initially seem quite weird. But if you think about it, any bank or stock share you would trust with the money will still be run by strangers. In fact, you will probably find that when lending money via a social lending club, you have more control over what you want to invest in, who you want the money to go to and what sums you want to lend.

The risks of lending money as an investment

Investment and risk-taking go hand in hand, as anyone with a basic notion of finance will understand, and there is no investing without risk-taking. Especially in today’s economic climate, any bank you trust your money with could go bust, and any stocks or shares you might invest in could fall, or worse, crash. The same goes for property investments: the market can rise in a certain area, and it can fall, or stagnate. But of course, you might also end up making some money in any of these situations. As a money lender, you will lend money to people, charging interest on the amount loaned, getting back more than you loaned, and ultimately investing cleverly and making money. Any risk you decide to take is under your control, whereas if you have a stock broker or a bank in charge of your finances, you often don’t know what exactly they’re up to. Of course, most social lending clubs help you minimize the risk you take when lending your money.

Investment opportunities in Social Lending Clubs

The basic idea behind social lending clubs could not be simpler. People interact with people – one person lends money to another person who needs it more than the first person, be it for some project of theirs, or even in some cases, to survive. The borrower puts an end to, or at least partially solves, their money troubles, and the lender makes an investment since they charge interest for the loan. A percentage is agreed upon and the borrower needs to pay back the amount they borrowed, plus the sum that emerges from the agreed interest rate. Furthermore, a time limit can be set, within which the borrower agrees to pay back the money. By becoming a social lender, you are very much in charge of your own money and you decide what to invest in. Registering with a social lending site is easy and fast, and it is all it takes to get you started.

Types of investment opportunities in social lending websites

One thing about social lending is that it is infinitely more personal than investing in anything else. Your money goes to real people with real issues and problems they need to take care of, people you can talk to and get to know. Depending on what appeals to you, you can invest in different things. If you would like to commit an entirely altruistic and charitable act while still making your money work for you, look at Kiva, a social lending site where your money goes to the working poor in order to alleviate their struggle. Most other social lending sites, such as Lending Club, Prosper, Zopa or Virgin Money, will, aside from providing you with investment opportunities into other people’s personal and family projects, offer business investment opportunities as well. No matter which website you register with, check their references first, and make sure they are reputable and get other people’s opinions wherever possible. It is your money that we are talking about and no one wants to put that at risk.

What sort of returns can you expect on your investments?

In terms of the returns you get, p2p lending can actually be a lot more attractive than you might think. If you compare p2p returns with what you would get at a bank or by participating in the stock market. Depending on the credit rating of the person borrowing, you will be able to charge a lower or a higher interest rate. Of course, low risk investments will have lower returns than high risk ones, as with a lot of things to do with finance. You set your own level of risk, and with that, your own level of return. However, general values range from at least 7% for low risk investments, up to 20% for high risk loans.