Peer-to-Peer lending is a great way to make your money work for you. Basically, you lend money to others and in return you get interested. You do this via third-party platforms. If you want to get started with Peer-to-Peer lending, or crowdlending, some questions might arise. How to start with Peer-to-Peer lending?
What can I expect? What returns will I get? How passive is it?
I had these questions myself when I started with Peer-to-Peer lending. That’s why I wrote this article to help you find an answer to those questions and kickstart your way to Peer-to-Peer lending.
As with anything, we will start with the end in mind. We will start by checking how to include this P2P lending into your current financial goals. After that, we will discuss how to actually start P2P lending. Then we will go more into how we can make this income stream passive.
Let’s dive straight into how to start with Peer-to-Peer lending!
1. Start With The End In Mind
The first step is to set your goals. As with any financial decision that you’re making, start with the end in mind. My goals consist mostly of three things: how much I will invest in this, what is my income goal for this investment, and what percentage of your portfolio this will be.
How much do you want to invest in this? After you’ve invested the initial investment amount, getting money into your Peer-to-Peer investments regularly will get the compounding machine going. It’s easiest to allocate a percentage of your monthly income to Peer-to-Peer lending.
What is your income goal? How much money do you want to get from your Peer-to-Peer investments? This can be a moving target. You can express this in yearly or monthly amounts and when your goal is reached you can redefine it. Most P2P lending platforms make around a 10% annual return. My goal is 100 euros a month in passive income, meaning I will need to invest around 12.000 euros in Peer-to-Peer lending.
What percentage of your portfolio is allocated to P2P lending? I know I write a lot about Peer-to-Peer lending. However, I don’t recommend investing all your money into P2P lending. It’s generally not a good idea to put all your eggs in one basket. A general rule of thumb is to have around 10% of your portfolio in P2P lending. I would say spend the other 90% of low-cost index funds – my favorite! Besides that, it is good to have an emergency fund with 3-6 months of living expenses.
2. Select A P2P Lending Platform
After you’ve determined what your goals are and how much money you will invest in Peer-to-Peer lending, you can select your first lending platform. It’s hard to make recommendations that are suited for everyone, as regulations make some platforms only accessible for residents of those countries. For example Lending Club in the United States.
I would say go for a platform that you’re comfortable with and that’s widely known. Important as well is to select a platform where you can diversify your investment between a lot of loans or a platform where they offer a buyback guarantee when loans default.
As a European investor in Peer-to-Peer loans, I highly recommend Mintos for starting (unfortunately not for US citizens). This is the platform where most of my Peer-to-Peer money is invested.
If you want more details about Mintos, you read my full Mintos review here. When you sign up using my link, you get a bonus of 0.5% of your invested amount in the first 90 days!
3. Invest Your First Money
After you’ve selected a P2P lending platform, you can start investing with your first loan! You will need to transfer some money, which is possible by SEPA (Europe) or ACH (United States). The money is often available in less than one day!
Once you have the money in your account, you can actually invest in your first loan. You can check which types of loans are available and see what settings you want to have.
As a new investor, I would recommend investing the minimal required amount in any given loan. Usually, that would be around 10 euros. That way you can diversify your investment and minimize your risk in any given platform.
4. Automate Your Investments
Now that you’ve invested in your first loan, let’s spice things up! As you know, I’m all about automating and paying yourself first. It is so convenient to set it and forget it, without having to invest the money manually into different loans.
At some point, you will have payments coming back into your account every day. You don’t want to check your investments daily to reinvest your gains and manually choose new loans. Let’s automatically reinvest your returns!
To automatically reinvest your returns, you can use the auto-investing feature that many platforms offer. They are mostly called ‘Autoinvest’ and will enable you to set your own settings – when there is any loan available that fits your criteria, the platform will invest in that.
It is important to know how to set up the auto-investing feature. Otherwise, it would be hard to know how to set up reinvesting your returns on a continuous basis. When you’re starting put the automated investment amount to the minimum possible amount – often 10 euros per loan. Once your automation functions are all set up, you can enjoy passive income from Peer-to-Peer lending!
5. Check Your Investments Monthly
When you’re all set up and you’ve automated your Peer-to-Peer investments, it’s important to check your investments regularly. This will not directly give you a return on your money, but monitoring the performance of your investment is important.
If you notice that your strategy is not working, you can adjust at the earliest possible opportunity. If you have a low return on your investment because not all your money is invested or there are a lot of late payments, you can check why that is the case.
Personally, I check my P2P lending accounts once per month when I’m writing my monthly report. Most of the platforms you’re investing in will tell you your current return on investment per year. If you notice that your returns are lower than the platforms’ average, it will be good to go back to step #4 and adjust your auto-investing strategy.
Monitoring your progress and checking your investments will show you if you’ve reached the goals we set at the beginning. If you’ve met all your goals, you can set new goals and go to the next level with your Peer-to-Peer investments.
6. Repeat Until Financially Independent
Now you’ve got your first Peer-to-Peer investments going, you can repeat the process. Again and again. This will grow your investments over time, especially when the compounding machine will start doing its job.
Diversify your investments when you’re investing in a platform. Diversify your investments even further and invest in several platforms. You can even diversify and invest in different currencies!
When you follow these steps, you will have a great passive income-generating machine that will start compounding over time.
To step up your game and move more money into your compounding machine, it’s important to save money. There are many ways to save money, like not eating out often, not having a TV, living in a small apartment, driving a cheap car, and more.
If you’re having issues saving money, it might be a good thing to make a budget. Budgeting can be extremely helpful if you can stick to it. I mean, saving money doesn’t have to be boring!
The more you save, the more you can invest. The more you can invest, the more you will fast track your way to financial independence.
Summary – How To Start With Peer-To-Peer Lending
To recap, the steps to start with Peer-to-Peer lending are:
- Set your (financial) goals
- Select a P2P lending platform
- Invest your first money
- Automate your investments
- Check your investments monthly
- Repeat until financial independent
When I decided to start with Peer-to-Peer lending, I’ve started with Mintos and later on added EstateGuru, Nibble Finance, and Crowdestor. If you’re not sure where to start, you can read my reviews here:
- Mintos Review – my first Peer-to-Peer lending love. When you sign up using my link, you get a bonus of 0.5% of your invested amount in the first 90 days! Check out what Mintos loan originators the invest in.
- Crowdestor – 15% Return On Big Projects. Read our full Crowdestor review here.
- EstateGuru – real estate peer-to-peer lending, my personal favorite platform. Check out this EstateGuru review to earn 11%+ per year passively.
- Nibble Finance – automatically investing in peer-to-peer lending with 14,8% return, plus 2% cashback on your investments the first 30 days. Read this Nibble Finance review for more.
Did you already start with Peer-to-Peer lending?
Marjolein is a financial consultant who has built over €4,000 monthly passive income and saves over 70% of her income. Read Radicals’ inspiring story, from stuck in the 9-to-5 to loving life. Feel free to send Radical a message at the bottom of this page
2 thoughts on “How To Start With Peer-to-Peer Lending”
I liked the final step #6 😉
I have to admit it’s also my favorite step, perhaps we need to skip step 1-5 and just start at 6. Why not? The sky is the limit right?!
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