3 Tips How To Become a Lender To Run Well

(doylc.com) How To Become a Lender - Some consumers or those with excess capital tend to follow the old axiom of "neither be a borrower nor a lender," but others are looking to make money from lending. Seeing how much income banks and big lenders are making on their loans is enough to get a few individual cash or asset holders to lend some of their money in hopes of making good interest payments over time. A combination of economic incentives and new technology is enabling more people to become effective lenders and earn good returns on money they currently have parked in low-interest bank accounts.

• How To research into the lending process

Gather your capital. For best results, you want all of your loanable money to be pooled into one central account or "pot". This will also help you figure out how much you can lend without breaking your own household budget.

It's best to plan for a worst-case scenario where you're just lending money you can live without in the event a loan fails to be repaid.

Understand your credit goals. Before you start lending money, you should look at several factors, including how long you want the money to be tied up and how much you want to make from it. This will help you narrow down the loan choices further down the line.

Look at the tax burden. The simple fact that seasoned money managers understand is that every investment has a tax burden, and lending is no exception. As a private taxpayer, you must pay tax on income from interest payments, which is deducted from your gross profits or income. It's up to you as a lender to figure out how this will affect your future tax bills.

• How to evaluation of microcredits

Research microcredit. For almost every single potential lender, the best route to effective lending is through internet microcredit services (also called peer-to-peer lending), which help small lenders find interested borrowers. Check out these pages and familiarize yourself with all the rules and regulations to avoid any misunderstandings later.

Popular microcredit websites include Kiva, Prosper, and Lending Club.

Some of the reasons why people want to borrow through microcredit are:

Pay off credit cards at a lower interest rate

Start a small business or grow an existing one

Fund a creative project such as a film, music or an artwork

Finance a wedding, car repairs, or consolidate other loans

Evaluate how microcredit sites rate borrowers. Similar to large lenders, microcredit websites often "rate" borrowers based on the answers they provide on a questionnaire. This allows lenders to match borrowers who meet the desired level of risk. Generally, you select a "basket" of loans and bet that the majority of them will not default, or in other words, be unable to repay them.

Riskier borrowers are charged a higher interest rate.

Make the deal. Once you've selected your desired loan recipients, you should be able to seal the deal on microcredit sites using their proprietary tools and documentation. When these are all completed, you will indeed be a lender able to collect income payments to grow your entire investment portfolio.

Consider a loan club. Instead of lending money to an individual borrower, invest in bills or $25 portions in a lending club. In this way, your investment is spread across hundreds of loans, while borrower loans are funded by many different investors.

• How to research the pros and cons of microcredit

Evaluate the benefits of microcredit. The main benefit of microcredit is a return on your investment of between 5% and 9%. That is much more than in a savings or call money account. These returns factor in a default rate of 4-5% and 1% microcredit company fees.

Microcredit isn't tied to the stock market, so even if the market crashes, you should still get a good return on your investment.

Assess the risks of microcredit. Borrowers can default on loans. This type of loan is not secured by a home or other collateral that a bank would normally require. Borrowers can also file for bankruptcy and you would lose your investment.

Consider an automated investment tool. Instead of selecting individual borrowers, which can become very time-consuming, you can initiate automated investing. You choose a mix of loan grades based on borrower risk and set the amount for each loan. Then the tool will automatically invest in loans for you and send a daily report online.