One of the benefits of investing in P2P loans is that you can get a pretty sweet monthly income.
You may have seen the income reports P2P investors love publishing on their blogs or know a few people who brag about how much money they’re making with P2P investing every month. Yes, you can make a monthly income from P2P investing, but what is a realistic amount? And is it better to reinvest or withdraw your investments?
In this article, we help you understand what a realistic monthly P2P investing income is and how to get there.
How can you make an income with P2P lending?
With P2P investing, you are essentially lending money online to strangers for a profit. As a P2P platform, we act as a gatekeeper to make sure loans are paid back and investors get a good return on their money.
Our loan originator, Wandoo Finance, issues consumer loans to individuals in specific countries. They sell those loans to us, and we find the investors. Borrowers pay back their loan to Wandoo along with interest, and that interest is your profit.
As an investor, you will receive regular interest payments from the loans you’re funding. You’ll also receive your entire principal back once the loan term is up. Those two will be your sources of income in P2P lending.
With P2P platforms like Swaper, you can choose to reinvest the income you receive from those loans or leave it in your account to be withdrawn or invested somewhere else.
When should you reinvest your earnings?
At Swaper, you can choose which one you want to do with just a click of a magical button:
Account dashboard from our P2P loan app
Should you reinvest?
The answer to this question depends on your objectives. If you are trying to maximise your return on investment and increase your net worth, reinvesting is the way to go. With the auto-invest portfolio, your money will be automatically reinvested into loans as they come up and you’ll be sure not to miss a single day on your compounded interest.
In fact, with the auto-invest portfolio, you just need to add funds and you won’t ever have to check on your loans and click on any weird buttons. Your money is automatically invested following the best criteria, and once loan terms are finished your money is automatically re-invested. The entire system is on autopilot, which means you can sit back, relax and enjoy the returns – Warren Buffet style.
When should you keep your earnings?
When should you turn the magic reinvest button off?
There are three likely scenarios where you might not be interested in reinvesting your P2P income:
- You have retired and are now living off your investments (congratulations!). Every month your P2P investments are part of your monthly drawdown and you use them for personal expenses.
- You want to liquidate all your loan investments and put them somewhere else. Instead of re-investing, the money will accumulate in your account and you can withdraw whenever you want.
- You prefer manual investing and want to have control over where your money is invested. Once your loan terms are up, the money sits in your account and you manually reinvest into your preferred loans.
When you turn off the re-invest button, the money will simply stay in your account and you’ll get to pick what to do with them next. If you’re looking to liquidate, you can also choose to sell on the secondary market, which might be faster than waiting for your loans to finish.
Is P2P investing passive income?
Passive income is traditionally defined as income that doesn’t involve active participation from your side and allows you to stop exchanging time for money. This could be royalties from books, songs, digital products, etc. Active income is money that you earn from your own work, such as a salary or self-employed work.
Passive income can also come through as stocks or bonds, and even P2P investing. That’s because your money is working for you: it’s acting as a loan towards other strangers, who then pay you back along with interest.
As your investments keep on growing, so does your wealth. And if you decide to drawdown from your P2P investments rather than reinvest them, you are essentially receiving passive income. However, similar to the stock market, you do need to have a large amount of money invested in order to live off your P2P investments full time.
Although your expected returns with P2P investing are much higher (14%!), this also may come with higher risk.
That’s why it’s important to be aware of said risks, which we have outlined on our FAQ page.
Can you earn a decent peer to peer monthly income?
The short answer is: YES!
The long answer is that it will require a large upfront investment and it might need to be paired with another steady monthly income. That’s because some P2P loans can be delayed, and our buyback only kicks in after 30 days late payments.
(Just a quick note: The buyback period can sometimes be 60 days, or even as long as 90 days, but it really depends on the platform or loan originator).
You can calculate how much income you want to make with P2P investing by working your way backwards. For example, if you’d like to receive 250€ per month, then you would need to invest at least 20,000€ in your P2P investing account. If you want 750€ per month, then you would need to invest at least 60,000€ – and so forth (calculated based on monthly compounding interest).
As we mentioned above, it’s also important to take into account potential delayed loans and cash drag (when primary market loans take longer than expected to get funded). As it is with P2P investing, there is also the risk that a borrower defaults.
In that case, our buyback kicks in – you’ll get your money back, but it will take a little longer to reach your account. That’s why it’s always prudent to overestimate how much money you would need invested in order to receive your monthly income.
If you’re a new P2P investor, these numbers may seem very high – but the good news is that you don’t need to contribute so much in order to get started with P2P investing or to make a decent return.
Our auto-invest portfolios allow you to get started with as little as 10€ – and if you add 100€ every month, then you’re already making over 100€ in pure profit by the end of the year.
Due to the irregular nature of P2P interest payments, it might not be wise to rely solely on P2P investing as a monthly income.
With Swaper, you can earn a more than decent peer to peer monthly income at our interest rates of 14%, and 16% with our loyalty bonus. Reinvest or not, your money will be growing at a much faster rate than if it sat in a low-interest savings account.
Keen to get started?
Disclaimer: The information contained on this website is not intended as, and shall not be understood or construed as, financial advice. We have done our best to ensure that the information provided on this website is accurate and provide valuable information.