You need a great business plan to be a millionaire or billionaire, but to sustain that earned financial status, you need a great investment plan!
And luckily, there are many opportunities for the investors to invest. P2P lending is one of them. It is nothing but the practice of lending money to individuals through online match lenders with borrowers. In other words, when a sophisticated algorithm matches lenders with the borrower like it matches a rider with the driver after considering the requirements of both entities, it is called P2P lending. With the advent of many P2P lending apps, the P2P lending industry has been witnessing fruitful results. Borrowers and investors both are adopting it as P2P lending apps offer great convenience to them by eliminating paperwork and lots of other manual work. As an upshot, P2P lending users in the USA alone will reach 126 million by 2020. (In 2014, it was just 53 million.)
However, P2P lending is such a kind of investment where the investor should use resources wisely. The availability of many P2P lending apps and their complex features make it even worse. Thus, looking at its gravity, herein I will share 7 smart and profitable steps you have to follow to earn great profit from investing in P2P lending.
1. Identify your goal
Not only P2P lending, but any sort of investment should be carried out after defining the goal. Defining the goals makes all other investment steps smooth and increases the success rate.
For P2P lending, you have to identify many things such as how much you have to invest? At what APR you have to invest? Do you want to lend money locally or internationally? And for how many years, you wish to invest?
Once you get the answers to all these questions, move to the next step.
2. Identify the most suitable platform
It is the basic requirement – you always need a platform to invest in P2P lending. Though finding a P2P lending platform sounds easy, but it is not. You have to find a P2P lending platform among many available platforms that satisfies all your goals in the best possible way.
You have to prefer a platform that has a track record and has been in operation for more than 1 year. You also need to consider the profit it has offered to other investors so far. However, deciding the worthiness of a platform based on past data is not an accurate approach. But past data at least shows us the value of the platform and assures us that they have already eliminated all IT bugs from the platform. Additionally, if you want to lend money to local borrowers, it is advisable to find a P2P lending platform that is popular among your local borrowers. And if you have to invest money internationally, it is very crucial to validate the legal license of the international P2P lending platform.
3. Make listing properly and add all-important details
Once you select the most suitable P2P lending platform, you now have to list out yourself on that platform as the investor. While listing yourself, you also need to list how much you wish to invest. Here, it is advisable to add correct and comprehensive details. Because the algorithm of the P2P platform compares your profile with all potential borrowers and mark only one for you. Meaning, the more details you give, the more ‘trustworthy’ borrower you’ll get.
Here, it is worth mentioning that diversifying investment is the basic practice of reducing risk and increasing profit. The idea of diversifying investment is very common among pro-investors. They usually lend $10000 to 10 borrowers, rather than $100,000 to only one borrower.
4. Select between auto-invest and manual invest
The current market is flooded with the many P2P lending apps and all these apps accommodate many groundbreaking features. Auto-invest is one of those features. The auto-invest feature basically asks your desired investment amount, minimum interest rate and loan duration and then it automatically lends money to the matched borrower. This is a really useful feature and saves a lot of time. But there are some disadvantages to this feature which you should know.
First of all, it is not for the newbie investor. As a newbie investor, you have to first understand the cash flow and the profit margin in lending. To be a pro in the game, you have to invest manually. It makes you aware of every element of P2P lending.
Moreover, an auto-invest feature of the P2P app is not very practical when you don’t wish to diversify your investment. For instance, if you want to lend $50000 to only one borrower, you obviously want to verify the borrower by yourself as verifying only one borrower isn’t a tedious task. However, auto-invest is very purposeful if you want to lend $1000 each to 100 different borrowers.
5. Measure the risk
Investment roams around the risk! Especially, when you are investing in P2P lending where there isn’t the involvement of the bank. Though every P2P lending app is equipped with a fraud detection engine, risk analysis, and credit score checker, your money isn’t completely safe. To keep your money safe, there are some jobs which you have to perform.
Firstly, you have to know the worthiness of the credit score checker that the P2P lending app is using. A credit score of the borrower is very critical while measuring risk. It represents the creditworthiness of the borrower. So, the higher the credit score of your borrower, lower the risk. Additionally, while investing manually, you just don’t need to rely on the borrower’s credit score. You also have to take other details of his profile into account to know the creditworthiness of him. Many P2P lending app providers keep an army of interest collectors to collect the interest from those borrowers who don’t pay on time. Opt for such apps, your money will be saved!
6. Be up-to-date
After following these 5 exhausting steps, once you lend money to a borrower, don’t shift your focus. Keep an eagle eye on the interest amount and another market trend. You also need to be proactive and keep fetching other loan listings and new P2P platforms. This will help you to come up with an aggressive investment plan for the next time!
In the nutshell:
P2P lending is the most favored method for investors to make more money quickly. And many P2P lending apps do justice with their choice. However, you should follow the process here. P2P lending platform plays a key role. If you end up choosing the wrong P2P lending platform, the investment would turn out to be the worst financial regret of your life. Secondly, you also need to select between manual investment and auto investment. As the auto-investment feature is available in only a few platforms, select one according to your requirement. Lastly, a vitally important step that defines the fate of your investment is the legal norms. Before investing through a global or even local P2P investment platform, check the legal norms regarding investment where you are investing and whether your chosen P2P lending platform is legalized or not.
About the Author
Vishal Virani: Vishal Virani is a Founder and CEO of Coruscate Solutions, a leading P2P app development company. He enjoys writing about the vital role of mobile apps for different industries, custom web development, and the latest technology trends.