The loan market has expanded in leaps and bounds over the last decade, the rise of peer to peer loans and other forms of alternative lending have opened doors for people who would otherwise be lost as far as accessing credit goes. However, there are also people who are making a living out of peer to peer lending. Through online platforms, these people lend money and make a profit from the interest charged. Although this is a good business, you need a lot of financial discipline in order to minimize risk and reduce the chances of losing money through defaults. Here are some of the tips you can explore in order to ensure total financial discipline all the time:
Due Diligence
You cannot just lend money to anyone who needs it. There has to be a criteria that you follow in order to be sure that the person you are about to lend the money to has the capacity to pay you back. Because there aren’t many restrictions when it comes to peer to peer lending, it’s very easy to fall into the trap of trying to maximize profits without necessarily worrying too much about the risk. This is not the way to go with peer to peer loans. In that case, take your time and know the people who are requesting the loan and see to it that they have what it takes to repay you.
Set Your Terms
The fact that you are the person offering the capital means that you have some bargaining tool. Do not budge to meet the terms of the borrower. Although it is important to be flexible with your lending as a private lender, it doesn’t mean that you have to give in to everything. The rule of thumb is to draw a line and say what you can lend. For example, you can set a standard that you won’t go lower than 5% with the interest or that you won’t go beyond 500, 000 Kr in the amount you want to lend,. These are just a few examples that can help you avert risky borrowers.
Diversify Your Client Base
Peer to per loans were established for personal use yet even today you will realize that there are many businesses that are using private debt to raise capital. You need to be smart about your lending. While there is nothing wrong with lending money to individuals, make sure you also have businesses taking advantage of your loans. The aim of diversifying is to ensure that the level of risk is reduced significantly. After all, the lending business has its own challenges and putting all your eggs in one basket won’t cut it. Lend your money to both individuals and businesses and set terms that are reasonable enough for all parties.
These are simply some of the few steps you can take to minimize risks in peer to peer loans. You can visit Toborrow.se for more information on private lending in Sweden and how you can benefit.