Be The Bank Through Social Lending
Loans (Photo credit: zingbot)
Have you ever wanted to be a bank and borrow money at a low rate of interest and lend the same money at a higher rate of interest, thus earning a "spread" on the money while having no net capital outlay?
One possibility (depending on your credit score) is to use one of the social lending sites such as Prosper.com. The way it works is you become a member of the site and first borrow money (up to $25,000 on Prosper). Once the loan funds, you then sign up to become an investor on the site and invest in a group of loans (usually $50 to $100 per loan) - Prosper has an automated bid platform that does all the work for you. Sometimes, due to a shortage of lenders, the site offers cash incentives to investors. The investor interest rates are quoted net of estimated losses, so as long as the net interest rate (after charge-offs) exceeds your cost of borrowing, you are making money on the deal. Recognize that a higher rate of interest (lower credit quality) comes with a higher risk of default, but that can be reduced by spreading the investment over many loans and over many different credit quality groups.
Since you are basically investing in consumer loans, a recovering economy is a great environment for this asset class. There's a reason why you get so many credit card offers in the mail each week (which, by the way represent a huge identity theft risk to you - you might want to read my post on this topic). Banks make a ton of money in this business, especially on late fees!
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An Introduction to Peer-to-Peer Lending
Peer-to-peer lending: How to borrow from and lend to ordinary people
