How to Become a Loan Shark (The Good Kind)

August 1, 2010
by Kyle Taylor
Founder

One of the only, true passive ways to make money is by lending money to others and collecting the interest. Here are a couple of ways to become the richest loan shark on the block…

Loan Money to Your Neighbors

You’ve probably heard of sites like CashWindow that offer short term loans to consumers, but did you know that you can also get in the game? Peer to peer lending is a cool way for regular people like you and me to invest by doling out personal loans for people with bad credit. It might sound risky, but the applicants have to go through a number of procedures that keep the default rate relatively low.

My favorite thing about peer-to-peer lending is that you don’t have to have a lot of money to get started. The minimum investment is usually only $25, which also gives you the ability to invest in a lot of loans as a way of spreading around your risk. You can read more about my experiences with peer-to-peer lending here.

Loan Money to a Start-Up Business

Similarly to peer-to-peer lending, there are a number of new websites that have popped up that offer peer-to-business lending. It’s cool because you can look through all of the business requesting money and decide which businesses are loan worthy and invest in only the ones you think are going to succeed.

Again, with a lot of these sites you don’t need a huge amount of capital to get started. It’s certainly a lot more interesting that investing in a mutual fund where you have little to no control over what companies are given capital. If you’re interested in giving this a try, start with sites like Peerform.com, RebirthFinanicial.com and Gust.com.

Loan Money to Poor Countries

Oprah Winfrey recently made Kiva.org famous by declaring it as one of her “favorite things.” Kiva’s mission is to to allow individuals to invest in small businesses that exist in underprivileged countries. For example, a couple of the borrowers being featured on the website right now include a family coffee business in Bolivia and a man in Uganda who needs a $175 loan to grow tomatoes.

Because of the part of the world they live in, many of these people have trouble obtaining access to financial institutions, let alone the ability to obtain cash loans.

You can invest as little as $25 in each business and the loans are usually repaid within 12 months. The investment won’t earn you any interest on your money, but you might gain some serious karma, which is probably more valuable in the long run anyway. These are known as signature loans because only the borrower’s signature and promise to pay is used as collateral. Although, Kiva boasts that they have a repayment rate of 98.91% and they will return your money via Paypal when the loan is repaid.

Good luck Penny Hoarders!

by Kyle Taylor
Kyle is the founder of ThePennyHoarder.com

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