Are you community oriented?  Do you take pleasure in lending people money, but don’t trust your friends to pay you back?  Would you like to make a little more than 2 effing % interest on your hard-earned savings?  P2P lending may be right for you!

If you have some extra money hanging around — after you’ve established an emergency fund, paid off your debts, maxed out your Roth IRA and your employer-match for your 401k, and taken a well-earned vacation — peer-to-peer lending is going to be your best bet for interest rates.  P2P lending involves giving a loan to a specific individual for a specific amount of time.  The interest rates depend on the quality of the borrower’s credit score, and you can pick how risky you want your investment to be.  I’d recommend spreading it out over a few different levels, but that’s just me.

Note: This is NOT something you should do if you need your cash monies to be liquid.  This is NOT where you should keep your emergency fund.

There’s a chance your borrower will default, but, you know, there’s also a chance that an alligator will burn down your school.  You just don’t know what life has in store for you. This is going be be a less volatile investment than straight stocks, but riskier than an FDIC-insured savings account.  I’d much rather have a 7-20% return than peace of mind, but I’m greedy like that.

How do you know you’re going to get your money back? Well, you don’t — there is no guarantee, just like there is no guarantee that your shares of Coca Cola are going to be worth anything tomorrow. However, all of these microfinance companies screen borrowers strictly and have a very low rate of defaults. Still, it’s a risk, but it’s a more reliable return than, say, the fucking stock market (which tends to average out to around a 7% return, with more fees and way more migraines than I’m prepared to handle).

There are a few different businesses that provide this service for borrowers and lenders alike.  Lending Club is probably the most popular — there a good overview at debtkid (full disclosure: he does some work for them; I do not). If you want to sign up, leave a comment with your email address and you can get a $50 bonus (fuller disclosure: and I get a $25 bonus, which you can also get if you get your buddies to sign up. Lending Club puts their advertising budget towards this word-of-mouth marketing maneuver. Everyone wins!)

You can also become a borrower if you have a good credit score (above 660, I believe) and want to consolidate your credit cards, get a loan for a car, or just feel like paying for the privilege of having money. I don’t recommend this.

If you’re a feel-good sort of person, Kiva is the same p2p idea, except instead of gaining interest, you get to sleep better at night and you may possibly up your karmic levels by helping out entrepreneurs in developing countries (though there is a rumor going around that Kiva is coming to the US). You select which entrepreneur you’d like to assist, and your money is paid back over time. Remember those commercials — a dime a day could help this child eat, and you get pictures of the kid whose life you saved? It’s like that, except you get your money back, and you’re promoting capitalism, if you’re into that sort of thing.

My Money blog has a review of MicroPlace, where you can earn 5% if you can live without some money for two years, or 6% if you’re willing to give it up for six years. It’s sort of a combination of Lending Club and Kiva — earn interest, help out the impoverished. Mmm, capitalism with a side of philanthropy. Delicious!

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