One's Personal Loan is Another's Investment.
Introduction.
A development arising out of Web 2.0 technologies is the rise in ‘online’ Social Lending networks and the investment opportunities they offer. Whilst friendly societies have been around for hundreds of years lending money at low or even zero interest rates; Web 2.0 technology means that anyone anywhere in the world can access a Social Lending network and borrow or lend money - according to their financial needs and abilities. Increasing numbers of people are now registering with Social Lending web-sites as investors, prepared to make private person to person low interest loans in order to accrue a profit.
Who uses Social Lending networks?
When thinking about Social Lending networks it’s all too easy to just think in terms of the borrower and the borrower having all the advantages. It is, of course, true that a borrower will be able to borrow money at low interest rates and can arrange a repayment period that suits them. However, the person lending the money through a Social Lending web-site will also reap some advantages; whether purely altruistic or financial ones as well. Whilst the profile of lenders on Social Lending sites will be immensely varied, they can be seen as falling into one of three groups:
- Philanthropists who, find that they have money they can afford to use for people-to-people loans and generally lend to other people for worthy causes at low interest rates.
- Individuals with some spare cash; that are looking for a way to invest their money and make profit on it other than just leaving it in a bank.
- Finally there will undoubtedly be some people who see Social Lending web-sites as a full business and investment opportunity.
Investment opportunities in Social Lending clubs.
Whichever group the people who lend money on Social Lending web-sites fall into, they will be making an investment every time they give a person to person loan to someone else. Like any investment there is a risk attached to it, on a Social Lending web-site the risk is that the person borrowing the money doesn’t repay it. However, Social Lending web-sites are not ‘the wild west’ and without marshalling. Checks are made on borrowers and lenders alike to ensure everyone is dealing with everyone else on a level playing field. The result of this is that making a person to person loan is less risky than investing in stocks and shares and as safe as leaving your money in a bank, where it won’t earn much interest at all. Also, dependant on the amount of money you can make available for peer to peer loans you could invest in several small loans, rather than relying on one large person to person loan. Diversifying like this, will also enable you to arrange loans so that you have several investments; some short-term and some long-term ones - giving you a spread of returns over varying periods of time. Being able to see a steady stream of income arriving in the future will allow you to plan ahead regarding the amount of finance you can put into future person to person loan investments.
Become a Minipreneur in Social Lending.
The term ‘minipreneur’ is often used on Social Lending web-sites to describe anyone that becomes an investor. The term evolved from the idea that many individuals are involved in money-making schemes that are driven by the internet. An early example of this would be the global phenomenon of e-Bay; with people who would probably not have not shown any previous commercial acumen suddenly making internet trading their main source of income. The same is true of individuals who are prepared to lend money over the internet to other individuals. When you start trading as an investor on a Social Lending web-site you are in full control of how much you lend and who you lend it to. You might prefer starting with person to person loans only in your own resident country, or you might be interested in helping developing economies expand - the choice is entirely yours. You’ll also find on Social Lending websites like lendingclub.com that you can opt to only lend money to low risk clients. Or, if you are prepared to increase your risk level, you can earn higher interest on your investment by making unsecured loans to people with less favorable credit ratings.