Video: Personal Finance

video transcript

You can do just about anything on the Internet -- your hands should be passed right here sheet and find out how much time you have left on -- I can even play banker. Making money by lending the strangers it's a novel way of getting high yield it's called peer to peer lending. Peta. Borrowers get much better interest rates that banks and credit card firms offer investors to get better returns and the interest that banks offer. Sure invest in loans as riskier than socking money away in savings but returns averaged roughly six to 10%. Vs past the interest of half a percent invest in the riskiest loans and net returns can be as high as 14%. After accounting for -- -- and a 1% -- here's how it works investors can choose from two sites and dominate the US to keep market. Lending club or prosper. They -- picked ala cart off a list of personal loans or have the site generate a loan portfolio in minutes based on how much risk the investors willing to take that to me. It's easy to diversify its value of offer investors -- in between that's -- -- 25 bottles. If you come in where it. Eight were 101000 bottles we recommend that investors. -- Q 25 total keys in the form dread. -- Typical entry will tell you how much money powers asking for what you'll use it for why he feels he deserves alone in -- stand -- These are prime loans typically ten to 151000 dollars lending club rejects 90% of all applicants prosper 80%. As bars make their payments investors get their pro rated share in cash each month. Keep in mind these loans are not guaranteed. So investors faced the risk that a borrowed one not paid back. Lending club says less than 3% of loans default prospered -- -- at less than 8%. The nice thing about the default risk here is that you're getting at least you're getting paid to take it. You know you're getting a nice yield on your loans are getting paid to accept some default risk here. That's very different. Then the circumstances that you're seeing in the long term bond market right now where you're running real interest rate risk in duration risk -- -- not being paid to take it. There is an economic risk if the jobless rate -- bounced back up. Borrowers would have a harder time paying back their loans peoples to rise and your returns will suffer. If you're worried about the legitimacy of the sites themselves take this to the bank. Last month Google bought a stake in lending club. And joining the club's board last year were former Morgan Stanley CEO John Mack and former Treasury Secretary Larry Summers.