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Can P2P Loan Help Generate Passive Income? A Quick Guide – Forbes Advisor INDIA


Many people around the world are earning an income by making smart investment choices and implementing a system that helps them harness their skills without expending too much effort or time. Passive income refers to the profits that the system earns from an entity’s cash income and is derived from various sources without the need to spend a considerable amount of time, energy, effort or other resources.

Some examples of passive income include portfolio income, rental income, royalty income, display advertising, while others include eBooks, YouTube channels, and P2P loans, among others.

What is the P2P loan?

P2P lending directly connects people with unused money who wish to lend to people in need of credit, eliminating intermediate margins. This allows lenders to get higher returns on their investments and borrowers to access quick loans at lower cost.

How can I earn with the P2P loan?

Lenders get back the money they lend in the form of IMEs – equivalent monthly investments – which include both principal and interest earned. Every month, the borrower repays the lenders through the IMEs. The P2P lending platform collects EMIs on behalf of the lender from the borrower and adds them to the lender’s escrow account from which the lender can choose to withdraw or invest again.

Most lenders are able to achieve high and stable returns by building a diversified portfolio. However, building a portfolio that mitigates the risk of default by spreading the investments among many borrowers with different risk, demographic, professional and other profiles can take time. P2P lending platforms involve innovative products and processes to reduce the time and effort required to build a portfolio.

How can my P2P loan income become passive income?

By definition, passive income should be earned without spending a lot of time and energy on it. P2P loan income can become passive income through smart investment decisions and choices.

1. Reinvestment

Lenders earn their income from the loans they invest in through IMEs which are credited monthly to their escrow account on the platform. They have the option of withdrawing these IMEs or reinvesting them in loans listed on the platform.

By reinvesting the lender chooses to:

  • Take advantage of the benefits of compound returns: Data shows that lenders who reinvest earn up to 10% more return than those who don’t.
  • Dramatically reduce time and effort: By enabling reinvestment, lenders ensure that their monthly income is automatically reinvested in the same products or plans they have selected and continues to generate returns for them. Thereafter, they do not have to spend more time investing these funds.

2. Automated investment

P2P lending platforms offer automated investment options that reduce the time and effort required to build a portfolio. Instead of spending time studying and selecting each borrower profile, you can choose to add funds to invest automatically and select the different parameters that match your investment strategy. The algorithm automatically builds your portfolio by matching your investment objectives with the borrower profiles listed on the platform.

Automatic investing is a more efficient and less time-consuming investment process that works for you to help you earn passive income.

3. Systematic Income Generation Plans

The newest, most efficient and fastest way to invest in P2P loans is for many investors to pool their money into a single portfolio to achieve efficiency in building and managing wallet.

The pool uses data science and artificial intelligence (AI) to create and manage a portfolio that has the potential to generate high and stable returns.

Once you have added the amount of your investment and authorized the platform to disburse it, your work is done. The platform’s algorithm will pour money from the pool into a diverse mix of loans and loan products that it believes have the repayment capacity to provide high overall returns.

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