Peer-to-Peer Lending as Residual Income

One thing that I've been doing the last couple years to help pad my income is investing in peer-to-peer loans. Baiscally these are loans that you give to your peers (go figure :) ).

The nice thing is that you no longer have to feel bad about charging your relatives interest for money you loan them, or have to worry about hustling your neighbors if they don't pay up. Instead, there are several websites that have popped-up that will take care of the legwork for you. One website that I use is prosper.com. The idea is pretty simple, you make loans to other individuals in need. Prosper provides credit reports, delinquency information, debt/income ratio's, and employment information, as well as a whole host of information. I'm not going to say I've gotten rich off of it, but I make a few hundred dollars a month in interest off of my initial investment a couple years ago. Not bad considering I used 0% interest balance transfers to fund the investment. (I can explain how to use credit cards to invest if you are interested).

There are a few other peer-to-peer lending sites out there, one other reputible one that comes to mind (besides prosper.com) is lendingclub.com. LendingClub is virtually the same as prosper, except they are a newer company so they have a smaller customer (loan) base.

Here are some pro's and con's of peer-to-peer lending, and in particular, those of Prosper and LendingClub.
Pro's:
- You can directly pick who you would like to lend to (Sense of ownership).
- You can invest as little as $25 per loan (Helps with loan portfolio diversification).
- Monthly payouts directly to your account.
- The ability sell your loans if you need to liquidate your account quickly (This feature is currently available, but it is still getting the kinks ironed out).
- No managment of loan portfolio (Websites handle payment processing, and account recovery, as well as many other aspects of loan management).

Con's:
- Relatively risky endeavor, to date about 20% of loans have defaulted (However, most of those were "E" or "HR" credit ratings).
- If you choose not to sell your loans, you must wait three years for maturity.
- No face to face interaction with borrower, ie, borrower may be misrepresenting himself online.

Overall, peer-to-peer loans are just another aspect of my online income portfolio. There are obviously more pro's and con's that could be said, but I'll leave it to these for now. If you are interested in some of the financial information from prosper.com, you can check out this website for more information: www.lendingstats.com.