Lending money as an investment.

Introduction.

People with some spare cash or savings are starting to consider lending their money in social lending websites, as a form of investment. The idea of lending your own money to a stranger might seem odd as an investment opportunity. However, if you put that same money into stocks and shares, or even left it in a bank, you’d still be trusting your money to a stranger. In fact, that stranger could be then use your money to invest in something that you might ethically or morally object to; whereas by personally lending money in a social lending cub - you can take full control of the investment.

The risks of lending money as an investment.

Any time you enter into an investment you are inevitably also taking a risk. If left in a bank, the bank could go bust. If you put your money into stocks and shares, their value can fall, even ‘crash’, as easily as they can rise. If you were to buy into property, whilst the market could rise, it too could stagnate or even fall - simply dependant on the area you buy into becoming more or less desirable, let alone due to any national economic fluctuations. Using one of the new social lending clubs or websites you could become a money lender. In doing so you can charge interest on the amount loaned, turning your capital into an investment - with any risks solely in your control and absolutely minimized. Social lending websites do themselves, of course, always seek to minimize any risks for their social lending investors - as would any web-site handling personal and financial data.

Investment opportunities in Social Lending Clubs.

The principle behind social lending clubs and web-sites is simply the idea of people-to-people lending. ie. One person gives a personal loan to another person, in order to enable them to carry out a project. In this respect the person lending the money becomes an investor, because the person borrowing the money has to pay the lender interest. In lending money through a social lending website the investor won’t just agree the percentage of interest they’ll charge on the loan, but can also set a time limit for the repayments to be made in. By becoming a lender in people-to-people loans, through a social lending website, you should also be confident of making sound investments based entirely on your own judgment. To get involved in people-to-people lending money, all you need to do is simply register with a social lending website.

Types of investment opportunities in social lending websites.

If you are considering using your capital as an investment in people-to-people loans you’ll want to learn something about the sort of returns you can expect to get. First of all there are different types of social lending websites. Some are entirely altruistic and not-for-profit organizations, some are highly commercialized whilst others, like Lending Club, operate on a commercial basis but can also appeal to investors looking for something more socially or ethically acceptable to invest in. Whichever type of social lending website(s) you decide to register with you - should satisfy yourself that they are both reputable and offer the type of investment opportunities that you approve of, like those offered by Lending Club. For example you might want to only be lending money to other individuals for personal or family improvement projects as opposed to business investment opportunities.

What sort of returns can you expect on your investments?

People-to-People loans can be very attractive investment opportunities returning profits several times greater than you would obtain compared to leaving your money in a bank or even playing the stock markets. The actual interest rate you charge on a loan will be guided according to the credit rating, or FICO score, of the person borrowing the money. Obviously low risk loans will carry lower interest rates than high risk ones. So, returning to the issue of risk, you set your own level of risk according to the project(s) you invest in. However, for some typical values; on a low risk loan an interest rate of at least 7% can be expected, rising to almost 20% for high risk ones.