High-risk business loans are loans targeted to businesses with poor credit history or limited cash flow, as well as to startups or those who operate in volatile industries. In other words, borrowers who pose a high credit risk to lenders.
Lenders may attempt to mitigate the risk on these small-business loans by requiring higher interest rates, shorter repayment terms or collateral.
How much do you need?
We’ll start with a brief questionnaire to better understand the unique needs of your business.
Once we uncover your personalized matches, our team will consult you on the process moving forward.
What are high-risk business loans?
High-risk business loans are a specific type of small-business loan given to borrowers who are considered to be risky to lenders. Risky borrowers may be those who have poor personal or business credit, whose businesses haven’t been operating for long, who operate in a volatile industry or have a history of defaulting or missing payments on loans.
What makes a business high-risk for a loan?
Both lending money and taking on debt involve some risk; however, the risk associated with high-risk business loans generally refers to the one that a lender incurs. Also called credit risk, this risk is essentially the chance that a lender won’t make back the money it has loaned out.
Did you know…
Credit risk refers to a borrower’s likelihood of repaying their debt to a lender. Credit risk is usually measured by an assessment a lender makes during the underwriting process based on a borrower’s credit score and payment history, debt-to-income ratio and the amount of available collateral.
There are several factors that influence credit risk.
Personal credit
Although it’s not always the case, a bad personal credit score — usually a credit score from 300 to 629 — may reflect high credit utilization rates and spotty payment history, which are concerns for a lender considering issuing a new loan. You can improve personal credit by paying down credit card balances, limiting new applications and catching up on past due payments.
Lower scores may also reflect a younger age of accounts or a limited variety in types of credit accounts (i.e., loans, credit cards, etc.). If this is the case for you and your payment history and utilization are good, make sure your lender knows the whole history when it is reviewing your application.
Startups
Startup businesses may be considered high risk simply because they don’t have financial records to demonstrate their ability to make payments on a loan. In these cases, lenders rely heavily on a business owner’s personal credit and repayment history, and in some cases, collateral.
Businesses in volatile industries
Volatility in business can affect the long-term predictability of a business’s revenue, and therefore its ability to repay a loan, which is why businesses that operate in volatile industries — such as energy, technology and financial services — may be considered high risk.
Offering collateral or having a co-signer on the loan can go a long way to help moderate that risk. A lender may also attempt to structure a loan in a way that matches up with your business’s cash flow, so it helps to be open to that.
Payment history
Businesses that have tax liens or past loan defaults demonstrate a poor repayment ability. To a lender, they are considered high risk because this payment history is an indicator of how likely they are to have difficulty making payments on any new loans.
If this is a part of your payment history, you may be able to help your case by being open and honest about it, and providing collateral to offset the lender’s risk.
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Est. APR
20.00-50.00%
Est. APR
35.40-99.90%
Est. APR
15.22-45.00%
Min. credit score
625
Min. credit score
625
Min. credit score
660
Loan options for high-risk businesses
Merchant cash advances
Merchant cash advances (MCAs) are an alternative type of financing where a lender issues a cash advance in exchange for a fixed percentage of your future revenue, plus a fee. Exact payment amounts will fluctuate depending on your sales, and lenders will usually take payments directly from your account.
MCAs are one of the most expensive forms of financing for a borrower. MCAs can come with factor rates that convert to APRs of over 100%. In addition, since they technically are not loans, they’re not subject to the same regulations that lenders typically have to adhere to.
Invoice financing
Invoice financing uses unpaid customer invoices to secure a cash advance, reducing the risk to a lender. A lender advances a certain percentage of the unpaid invoices — to be repaid by the borrower once the invoices are paid, plus a fee.
This form of financing can be fast to fund; however, fees are usually charged by the week, and repayment is dependent on how quickly a business’s customer pays their invoices.
Short-term loans
Lenders may also lessen their risk by requiring repayment as quickly as possible. Short-term loans mirror the structure of traditional term loans but provide a condensed, often more expensive, alternative to a longer-term loan’s lengthy repayment terms and relatively low APRs.
Equipment financing
Equipment financing is a type of business loan used to purchase large equipment or machinery that’s necessary to run the business. Equipment financing uses the equipment being purchased to secure the loan, thus offsetting some of the lender’s risk.
Online loans
Online loans are offered by online lending companies, and the process can be completed entirely online. They can be easier to qualify for if you are considered a high-risk borrower; however, rates and terms will be less ideal than you would find with a bank.
Secured loans
One of the ways your lender might look to offset its risk is through collateral, or by offering a secured business loan. Loans can be secured by assets like cash, large equipment, vehicles or real estate property. If you default on your loan, your lender can seize the collateral you’ve pledged in order to recover some of its money.
Personal loans
If you’re having trouble qualifying for a business loan due to length of time in business, you can use personal loans for business purposes. Like business loans, the best terms and rates for personal loans usually come from banks and require good credit history.
Equity financing
If you’re considered high risk because your business is a pre-revenue startup, you may consider equity financing, which involves raising capital by trading ownership stakes in your company. Angel investing and venture capital are forms of equity financing.
Peer-to-peer (P2P) lending
Peer-to-peer lending is a type of business lending that connects business owners with individuals or private investors. P2P loans are a way to borrow money without relying on banks, but they are often facilitated by a third-party company that provides a platform for business owners to connect with investors. They typically have less stringent qualifications than traditional loans, so they are a good fit for high-risk borrowers.
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Frequently asked questions
Do commercial banks offer high-risk business loans?
Banks don’t typically offer loans to high-risk borrowers; however, some may use different methods, such as collateral or special programming, to offset the risk.
What’s the difference between a high-risk business loan and a predatory loan?
High-risk business loans mitigate the risk through loan structure or collateral, or by offering smaller loan amounts. Predatory loans impose abusive loan terms on vulnerable borrowers without concern that the loan will be repaid at all.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
It is no secret that the internet is changing how money is made forever.
This has caused a boom in many businesses and people the ability to make money online, which is a huge benefit for you!
This trend will only continue as technology improves. If it feels daunting to jump onto this new bandwagon right now, don’t worry; we have some tips that can help you double your 10k in the next few weeks or years.
I am going to show you how to double your money so that you can retire early, pay off debt and invest in the stock market.
A lot of people would say this is impossible, but I’m not just showing it–I’m proving it!
We all have said it takes money to make money and while that is true. It is easy to start doubling your money with just $10K.
What if, right now, you decided to double your 10K by the end of the year? Maybe, you want to hit a major goal and make a huge change in only 8 short weeks?
Making money is not a difficult task. Too often, people become impatient and think that they can simply make money without putting in the effort. This is not true.
Cash is a tool and nothing more. Once you understand this concept, you can begin to figure out how to make more money. Additionally, it’s important to appreciate that it takes time to make money – don’t expect to become a millionaire overnight.
Here is a realistic guide to help you work towards that goal.
Be sure to decide which strategic way to double $10k quickly works best for your personality.
The 10K of your dreams seems impossible.
How can I double $10000 fast?
There is no one-size-fits-all answer to this question, as the best way to double your money will vary depending on your individual circumstances and goals. However, some general tips include developing a growth mindset around money, finding ways to make more money, and investing in yourself and your skills.
Keep in mind that $10,000 is not a lot of money to double in a short period of time.
How long does it take to double 10k?
The answer to this question is dependent on a number of factors.
The most important factor is the amount of time it takes for your investments to double.
If you are investing in stocks, you can quickly double 10K with an options contract within 2-3 days. If you are looking at other avenues, it will depend on how you choose to double your money.
Typically, people start seeing results in approximately 4 to 6 months to double 10k.
If your eyes are set on this, then make sure to write down one of the millionaire quotes for motivation.
What to do with 10k?
Now that you’ve earned an extra 10k, you may be wondering what to do with it.
You could save it, spend it, or invest it, but there are a few other things you could do as well.
Here are some ideas on how to make the most of your money and grow it even more.
How can I Double my Money?
There are many ways you can double your money in a short amount of time.
I am passionate about exploring the best ways to make money online. In this article, I will share some tips on how you can double your money relatively quickly. However, please keep in mind that these are general ideas to get you started.
Specifically How to Double 10k Quickly?
If you are serious about how to double your 10k fast, you will need to dedicate time on a regular basis to the tasks needed to reach your ambition. The key is to do it daily in order to keep the momentum of your progress going.
Earning money is a mindset.
To double 10k quickly, learn how to change your mindset about money.
Although doubling $10,000 may seem difficult, it can be done with the right approach.
If you have $10,000 and want to double it within a month or a few months, here are a few realistic strategies to help you reach your goal.
Idea #1 – Swing Trading with Stocks
Swing trading is a technique that allows investors to hold onto stocks for a period of time, typically two to four days. During this time, the trader watches for specific price patterns and buys or sells shares based on their analysis.
One former assistant principal, Teri Ijeoma, changed her life when she left her job as an educator and become an active trader.
Check out: My Personal Trade and Travel Review
This type of trading can be very profitable if done correctly, as it allows the trader to make twice their investment in a short amount of time.
The key is you must learn how to invest in stocks for beginners. This is one step many people overlook when they are focused on doubling their money. Either you will get lucky or you will have a huge loss. Take time and become educated on swing trading stocks.
Related Reading: How Fast Can You Make Money in Stocks?
Idea # 2- Cryptocurrencies
Cryptocurrency is a digital or virtual asset that uses cryptography for secure transactions. Cryptocurrencies are growing in popularity and may become a major part of society. Bitcoin, the first and most well-known cryptocurrency, has seen its value skyrocket in recent years.
Cryptocurrencies are often unstable because they are not regulated by any government or financial institution, and thus their value can change rapidly. However, the potential for reward is high, making cryptocurrency an attractive investment option. Because of this, cryptocurrency investments are often seen as riskier than traditional investments, but also have the potential for greater returns.
Before investing in cryptocurrency, do your research and be sure you understand the risks involved. There are many educational resources available to help you get started.
Idea # 3 – Flip Items for a Profit
Retail arbitrage is a practice where an individual or company purchases a popular product at a discounted price and then resells it for profit at another online retailer. This can be done on marketplaces like Craigslist, eBay, and Facebook Marketplace.
This is a great way to make some extra money on the side. You need some time and a willingness to invest, but if you find the right deals, you can make a good return on your investment.
Many people have great success by flipping items from auctions, free groups, or local goodwill store.
Check Out: Flea Market Flipping
Idea #4 –Resell Products on Amazon FBA
Amazon FBA is a service for independent entrepreneurs who want to start their own e-commerce business. They can offer products on Amazon and work with Amazon directly to fulfill orders, collect payments, and provide customer service. By doing this, they don’t have to worry about the inventory and can focus on other aspects of their business.
This is another avenue for selling your flipping treasures.
There are a few ways to make money through reselling products. You can either find products to sell on Amazon or Ebay, or you can dropship products from a supplier. If you want to find your own products to sell, you’ll need to do some research on what is selling well and what prices are competitive. If you want to dropship, you’ll need to find a supplier and create an account with them.
Idea #5 – Start a Business or Invest in a Franchise Company
Starting a business is not easy. It requires a lot of work and effort, but if you’re willing to put in the time and effort it can be very rewarding.
Starting your own business is one of the most difficult things you can do, but it’s also one of the most rewarding. There are many different businesses you can start that have low overhead costs, so it’s a great way to get started.
Think of the things you enjoy doing or any hobbies you have. Look for business opportunities that line up with your interests. Then, it makes working much easier.
Here are great ways to make money on the side:
It is possible to make more money on your business than you make more money in your current job or career.
Idea # 6 – Real Estate Portfolio
Real estate is a recession-proof business.
There will always be people who need to rent or buy dwellings in boom or bust economic times.
Real estate can be a lucrative investment, but it is not without risk. A lot of people have invested in real estate and lost money, but an investor who does their research and finds a good deal can make a lot of money.
Idea # 7 – Increase Your Income
If you’re not happy with your current income, don’t worry! You can increase it this year.
This is the year that many experts are predicting will see the biggest wage growth in years. So start planning now and you could see a significant increase in your take-home pay.
More than likely, this could be your seed money of $10k to fund the start to doubling your money and making $20k.
Related Reading: How Much Do I Make Per Year?
Idea #8 – Advertise and Gain Clients
If you are a small business owner, then this one is for you. Start advertising as a way to gain more customers.
There are a number of ways to make your services more accessible and appealing to potential clients. One way is to spend money on promotions and advertising. Advertising can be effective in reaching your goals, surpassing your double your money goal of $20,000 in revenue.
There is no doubt that advertising your services will increase the number of customers you have. The more people who know about your business, the more likely they are to use it. And as we all know, the more customers you have, the quicker you earn more money.
It’s a simple equation: More customers equals more money.
Idea # 9 – Invest in Stock Market – ETFs & Index Funds
Investing in the stock market is a process that requires careful consideration and research. Index funds have become an increasingly popular investment option for many investors. ETFs are known as Exchange Traded Funds, which are also a popular investment option.
Both index funds and ETFs provide investors with the ability to invest in a diverse range of stocks, making them ideal for any investor who is looking to diversify their portfolio.
Investing in an index fund is one of the best ways to build wealth over time.
This is probably the slowest way to make money quickly in the stock market, but it comes with less risk.
With a mutual fund, you are essentially investing in many different stocks, which means that you get to choose how much your investments grow each day. This can be a great way to ensure that your money is working for you – and growing – even when you’re not able to actively monitor it yourself.
Just to know, investing in bonds will eventually double your money, but it will take more time as the rate of return is less.
Idea #10 – Start a Mining Farm
Cryptocurrency mining is a process by which new coins are introduced into the market. In order to do this, miners use computers to solve complex mathematical problems in order to receive rewards in the form of new coins. A cryptocurrency mining farm is a way to pool together multiple computers in order to increase the chances of solving these problems and receiving rewards.
Starting a mining farm is a process of investing in cryptocurrency or blockchain technology.
Mining farms can be started with as little as $500, and they are commonly used to mine cryptocurrencies like Bitcoin, Ethereum, and ZCash. Although the process of mining cryptocurrency is not always easy, it can be lucrative for those who invest in the process.
Starting a cryptocurrency mining farm can be lucrative, but it’s important to do your research first. The farm will require a lot of power and will have a rate of return of around 18% (source).
Idea #11 – Share Cash with P2P Loans
Peer-to-peer lending is the act of lending money to borrowers through a P2P lending website. These websites act as an intermediary between lenders and borrowers, and most sites allow you to lend money to a dozen or two applicants. The interest rate you earn on your loan depends on the P2P website you register with, but it typically falls between 3% and 36%.
When considering a P2P loan, it is important to remember that you are entrusting your money to a stranger. Because of this, it is crucial to take the time to review and assess as many applicants as possible in order to find someone who you feel is most likely to pay back their loan.
P2P loans can be arranged without any collateral or credit check.
Idea #12 – Buy Initial Public Offerings
When a company decides to go public, it sells shares of its stock to the public. This is a way for the company to get more money, and it also allows people who invest in the company early on to make a lot of money if the stock prices rise.
The share price of a company can be very volatile when it first goes public. This can lead to significant growth for the company as investors buy and sell shares rapidly. However, this volatility can also lead to losses if the share price falls abruptly.
You must know the underlying stock value before looking at IPOs as a way to double your money. Many current stockholders are required to hold their stocks for a certain number of days after the IPO. Typically, the stock price falls after the hold period expires.
Idea #13 – Make Money with Airbnb
There are a number of ways to make extra money, and renting out a room at Airbnb is one of them. You can also learn how to make money from home by becoming an Airbnb host.
By doing this, you can provide a valuable service to people who are looking for a place to stay, and you can also make some extra money on the side.
Learn how to start hosting with Airbnb today.
Idea #14 – Flip Some Furniture
Flip furniture is very trendy right now. There has been a recent resurgence in popularity for antique and vintage furniture, and people are buying pieces and restoring them themselves. This can be a great way to make additional money without spending a lot of money.
There are a number of ways to quickly turn a profit by flipping furniture.
Spend some time researching the best methods and finding a niche in the market that you can exploit. With a bit of hard work, you can easily double your investment in no time.
When you are looking for furniture to flip, it is important to do your research and become familiar with the different places you can find quality pieces at a low cost. Local antique stores will often have hidden treasures, so be sure to check them out. Additionally, watch for yard sale notices in your area; people are often willing to sell high-quality furniture at a fraction of the price. Finally, estate sales can be a great place to find unique furniture pieces that you can resell for a profit.
There are many ways to sell furniture, but when you are starting out, it is best to use popular platforms like Facebook Marketplace, NextDoor, Craigslist, and others. Once you have more experience, you may want to create a website and online storefront.
This can be a fun and lucrative way to grow your money.
Idea #15 – Pay Off Debt Strategy
This idea of getting out of debt may seem backward, but this is one of the fastest ways to find extra money in your budget.
There is no doubt that paying off your debt is one of the smartest things you can do for your financial future.
Not only does it reduce the amount of interest you are paying each month, but it also frees up more money to save and invest. Additionally, by paying off high-interest debt first, you are essentially making an investment with a very high return rate.
Once your debt is paid off, you can save your first $10000 which you can now use to quickly double to $20000. This will help you achieve your financial goals faster.
Idea #16 – Online Courses & Coaching Programs
Coaching is a huge business – reaching $11 billion in 2022 (source). People are actively searching for coaching and online courses for personal development.
Coaching programs are designed to provide guidance and support for individuals in order to improve their skills, knowledge, or habits. Coaching programs can take the form of one-on-one sessions or group sessions. Some coaching programs are designed for specific topics like career development, personal growth, or relationship issues.
If you don’t want to work one-on-one as a coach, you can create an online course that can be viewed at any time.
If you have passion, you can likely find people that want coaching.
Idea #17 – Buy a Fancy Car and Uber
You could buy a new, luxury car and become an Uber driver. This would allow you to make money while driving people around in your fancy car.
If you’re looking to make some extra money, driving a luxury car for Uber could be a great way to do it. Not only will you make more per trip, but you’ll also get to drive a nicer car. Keep in mind that if you drive full-time, you could easily double your $10,000 investment.
Driving a luxury car for Uber can get you up to 50% more fares. The extra money can be great for those looking to upgrade their lifestyle or simply want to make some extra cash on the side.
If you want to buy a fancy car and use it for Uber, make sure you have the appropriate insurance. This will protect you in case anything happens while driving.
Idea #18 – Learn a New Skill
A new skill can help to increase your income by allowing you to do things that you couldn’t do before. For example, learning how to code can allow you to start a new career in tech or programming.
Additionally, many skills have the potential to double your income quickly if you are able to find a way to use them in high-demand areas.
It is always a good idea to invest in learning new skills.
There are many places where you can learn, including online and in-person courses. The key to success is jumping in with both feet and really dedicating yourself to learning the skill set. Once you have it down, new opportunities for income will be available.
Idea #19 – Work More Overtime
Working overtime is a great way to earn extra money. You can earn up to double-time pay for working more than 8 hours in a day or 40 hours in a week.
Overtime is becoming more common, so be sure to ask your employer if you can work some extra hours.
In order to make $10,000 in one month from overtime, you would need to figure out how many extra hours per work you need to work.
Idea #20 – Some Gambling?
This is the RISKIEST option of all of them. And highly not recommended as a strategic way to double $10k quickly.
Gambling is a way to risk cash in the hopes of making more cash.
While it can be thrilling and exciting, it’s important to remember that gambling is also a form of entertainment that comes with risk. If you’re able to afford it, gambling can be a way to double your money- but be aware that you could also lose everything you put in.
What is the quickest way to double your money?
How to double your money quick is simple. You need to side hustle and start a business.
Also, the stock market is a simple way to double your money with the rule of 72.
Following billionaire morning routines can be helpful in setting up solid habits for success.
How can I double my money in 24 hours?
The answer to this question is simple… Doubling the money in 24 hours is not practical or doable. You might be able to double your money in 24 hours, but it’s also possible that you could lose everything in one day.
Pay attention to scams if you think you can double your money in 24 hours.
You are better off learning how to make 10k a month.
Which investments are the safest and which are the riskiest?
First of all, it depends on your education, experience, and background.
The best way for someone to double their income is by leveraging their time with the right strategies.
Investments that are considered safe are investments that have an average return on investment of about 8-12% per year. Investing in index funds and ETFs typically have a lower risk. Investing in individual stocks is riskier, but they have an average return on investment of about 10-75% per year.
The riskiest option is the idea that you don’t understand how to double your money and you could end up losing more money.
Best Way to Invest 10K
The best way to invest 10,000 is through stocks. Investing in stocks can be risky and make you lose money, but it also has a high potential for gaining value.
As such, this topic needs to be done in more depth to understand how investments in the stock market work. For now, here are some articles to start to understand the returns of stock investing.
Learn all of the ways you can learn how to invest 10k.
You must do your research on companies, know your risk tolerance, understand the volatility of the markets, and be wary of the news.
Which Strategic Ways on How to Double my Money Quickly will you Pick?
You can choose from many classic way and options, but here are a few that we think would be the most effective.
Thankfully, there are many ways to make money online. But when it comes to making a quick buck, which approach should you take?
In this post, we have outlined the 20 popular routes to double your $10k fast. Your retirement plan relies on your investment of 10k.
However, any of these options is a time-consuming process that takes a lot of hard work and dedication. So, you cannot quit halfway through when things get tough.
This is what you want to do in order to be financially secure and take care of all your needs.
Be successful in doubling your 10k by setting a deadline to make it happen.
Then, your next goal will be how to turn 10k into 100k.
Know someone else that needs this, too? Then, please share!!
Back in the day, if you wanted a loan to pay off your car or credit cards, you’d go to a bank or a credit union, sit down with a loan officer, and wait for them to tell you yes or no as they “crunched the numbers.”
But now peer-to-peer (P2P) lending has come onto the market, offering loans to borrowers directly from individuals — and usually carrying more favorable terms for those without a great credit profile. Borrowers can access up to $50,000 (or more) from lenders, with fixed term repayment scheduled and reasonable interest rates. Investors can also become lenders on P2P platforms, earning interest collected on loans as a passive form of investment income.
Let’s break down some of the best peer-to-peer lending sites for both borrowers and investors, so you can determine which option is best for you.
What’s Ahead:
Overview of the best peer-to-peer lending sites
Best for those with high credit scores: Prosper
Best for crypto-backed loans: BlockFi
Best for young people: Upstart
Best for a payday loan alternative: SoLo Funds
Best for small businesses: FundingCircle
Best for first-time borrowers: Kiva
Prosper: Best for those with high credit scores
APR: 6.99% to 35.99%
Term: 2 to 5 years
Prosper is the OG peer-to-peer lender in the market. It was founded in 2005 as the very first peer-to-peer lending marketplace in the U.S. According to their website, they’ve coordinated over $22 billion in loans.
Borrowing with Prosper
If you’re a borrower, you can get personal loans up to $50,000 with a fixed rate and a fixed term from two to five years in length. Your monthly payment is fixed for the duration of the loan. There are no prepayment penalties, either, so if you can pay it off early, you won’t be penalized.
You can get an instant look at what your rate would be and, once approved, the money gets deposited directly into your bank account.
Investing with Prosper
As an investor, you have many options on loans to choose from. There are seven different “risk” categories that you can select from, each with their own estimated return and level of risk. Here’s a look at the risk levels and the estimated potential loss, according to Prosper:
AA – 0.00 – 1.99%
A – 2.00 – 3.99%
B – 4.00 – 5.99%
C – 6.00 – 8.99%
D – 9.00 – 11.99%
E – 12.00 – 14.99%
HR (High Risk) – ≥ 15.00%
As you can see, the lower the letter, the greater the risk of default, hence a higher estimated potential loss. With just a $25 minimum investment, you can spread your risk out across all seven categories to provide your portfolio some balance.
The borrowers that you’re lending to are also above U.S. averages regarding their FICO score and average annual income.
Learn more about Prosper or read our full review.
BlockFi: Best for crypto-backed loans
APR: 4.5% – 9.75%
Term: 12 months
BlockFi is a popular crypto lending platform that offers crypto-backed loans to borrowers and pays out interest to lenders. BlockFi offers instant loans and requires no credit checks for borrowers. All loans are collateralized, meaning borrowers will need to lock in their crypto to borrow against it.
Borrowing with BlockFi
If you’re a borrower, you can get a crypto loan for up to 50% of the value of your crypto, with rates ranging from 4.5% to 9.75% APR, depending on the amount of collateral. Payments are made monthly and are fixed for the duration of the loan.
Interest rates are determined by the amount of collateral deposited and the loan-to-value (LTV) of the overall loan. There is a 2% origination fee on all loans.
Loan rate – 9.75% (50% LTV)
Loan rate – 7.9% (35% LTV)
Loan rate – 4.5% (20% LTV)
Bitcoin (BTC), Ether (ETH), Paxos Gold (PAXG), or Litecoin (LTC) can be used as collateral for the loan, and can be liquidated if the LTV goes above the original LTV of the loan.
Investing with BlockFi
BlockFi offers interest accounts for users who deposit crypto. The funds are used for crypto lending, and interest is paid out in the native crypto deposited. Interest rates vary by cryptocurrency, and range from 0.10% APY up to 7.50% APY. Stablecoins (such as USDC) pay out the highest rates.
Crypto interest accounts are not available to U.S. investors, as BlockFi was sued by the SEC for violating securities laws.
Read our full review.
BlockFi Bankruptcy Notice -On November 10, 2022, BlockFi announced that it had to suspend withdrawals from its platform due to the FTX liquidity crisis. As a result, consumers should not be using the BlockFi platform. As of November 28, 2022, BlockFi officially declared bankruptcy.
Upstart: Best for young people
APR: 5.6% – 35.99%
Term: 3 or 5 years
Upstart is an innovative peer-to-peer lending company that was founded by three ex-Google employees. In addition to being a P2P lending platform, they’ve also created intuitive software for banks and financial institutions.
What’s unique about Upstart is the way they determine risk. Where most creditors will look at a lender’s FICO score, Upstart has created a system that uses AI/ML (artificial intelligence/machine learning) to assess the risk of a borrower. This has led to significantly lower loss rates than some of its peer companies. Combine that with an excellent TrustPilot rating, and this company is certainly making waves in the P2P marketplace.
Borrowing with Upstart
Borrowers can get loans from $1,000 up to $50,000 with rates as low as 5.6%. Terms are either three or five years, but there’s no prepayment penalty.
Using their AI/ML technology, Upstart looks at not only your FICO score and years of credit history, but also factors in your education, area of study, and job history before determining your creditworthiness. Their site claims that their borrowers save an estimated 43% compared to other credit card rates.
Investing with Upstart
Investing with Upstart is also pretty intuitive. Unlike other P2P platforms, you can set up a self-directed IRA using the investments from peer-to-peer lending. This is a unique feature that many investors should be attracted to.
Like other platforms, you can set up automated investing by choosing a specific strategy and automatically depositing funds.
Upstart claims to have tripled their growth in the last three years due heavily to their proprietary underwriting model, so it might be worth a shot to consider this option.
Learn more about Upstart or read our Upstart review.
SoLo Funds: Best for a payday loan alternative
APR: 0% (tipping optional)
Term: Up to 35 days
SoLo Funds is a peer-to-peer platform that functions as a short-term lender, similar to payday loans. With term lengths only lasting for up to 35 days, loans must be paid back in a narrow timeframe. But instead of charging fees, borrowers can leave an optional tip instead.
SoLo Funds is an affordable option for clients who are in a pinch and need an advance on payday, but there are hefty fees if loans are not paid back within 35 days. Users will need to pay a 10% penalty plus a third-party transaction fee if late.
Borrowing with SoLo Funds
Borrowers can take out loans up to $575 for a maximum of 35 days. Loans do not charge fees, but allow borrowers to select an optional tip amount to lenders.
Loan applications only take a few minutes, and while most loans post within a few days, some may be instantly approved, offering same-day funding with money transferred to borrowers within a few hours.
Loans must be paid back in full within 35 days, or there is a 10% penalty plus other transaction fees. There is no option to roll the loan over.
Investing with SoLo Funds
Lending is fairly straightforward, with a simple sign-up process and no pre-qualifications needed. Since the loans are smaller amounts (up to $575), there are no minimums required for lending.
SoLo Funds has a marketplace of loan requests from borrowers, with details specified on each. Each loan request shows the amount needed plus the tip given by the borrower for the loan. Each borrower also has a SoLo Score, on a scale from 40 to 99, with higher scores showing more “worthiness” for paying back a loan. Loans can go into default, and if needed, to collections through a third party. There is a risk of total loss with SoLo Funds investing, though the platform does offer insurance against loss for a fee.
Learn more about SoLo Funds.
FundingCircle: Best for small businesses
APR: 11.29% to 30.12%
Term: 6 months to 7 years
FundingCircle is a small business peer-to-peer platform. The company was founded with the goal of helping small business owners reach their dreams by providing them the funds necessary to grow.
So far, they’ve helped 130,000 small businesses across the world through investment funds by 71,000 investors across the globe. FundingCircle is different in that it focuses on more substantial dollar amounts for companies that are ready for massive growth. They also have an excellent TrustPilot rating.
Borrowing with FundingCircle
As a borrower, the minimum loan is $25,000 and can go all the way up to $500,000. Rates come as low as 5.99%, and terms can be anywhere from six months to seven years. There are no prepayment penalties, and you can use the funds however you deem necessary — as long as they are for your business.
You will pay an origination fee, but unlike other small business loans, funding is much quicker (you can be fully funded as quickly as 1 business day).
Investing with FundingCircle
As an investor, you’ll need to shell out a minimum of $25,000. If that didn’t knock you out of the race, then read on.
According to FundingCircle, you’ll “Invest in American small businesses (not start-ups) that have established operating history, cash flow, and a strategic plan for growth.” While the risk is still there, you’re funding established businesses looking for extra growth.
You can manage your investments and pick individual loans or set up an automated strategy, similar to Betterment, where you’ll set your investment criteria and get a portfolio designed for you.
Learn more about FundingCircle.
Kiva: Best for first-time borrowers
APR: 0%
Term: Up to 3 years
If you want to do some good in the world, you’ll find an entirely different experience in P2P with Kiva. Kiva is a San Francisco-based non-profit that helps people across the world fund their businesses at no interest. They were founded in 2005 with a “mission to connect people through lending to alleviate poverty.”
Borrowing with Kiva
If you’d like to borrow money to grow your business, you can get up to $15,000 with no interest. That’s right, no interest. After making an application and getting pre-qualified, you’ll have the option to invite friends and family to lend to you.
During that same time, you can take your loan public by making your loan visible to over 1.6 million people across the world. Like Kickstarter, you’ll tell a story about yourself and your business, and why you need the money. People can then contribute to your cause until your loan is 100% funded. After that, you can use the funds for business purposes and work on repaying your loan with terms up to three years.
Investing with Kiva
As a lender, you can choose to lend money to people in a variety of categories, including loans for single parents, people in conflict zones, or businesses that focus on food or health. Kiva has various filters set up so you can narrow down exactly the type of person and business you want to lend your money to. You can lend as little as $25, and remember, you won’t get anything but satisfaction in return — there’s no interest.
You can pick from a variety of loans and add them to your “basket,” then check out with one simple process. You’ll then receive payments over time, based on the repayment schedule chosen by the borrower and their ability to repay. The money will go right back into your Kiva account so you can use it again or withdraw it. There are risks to lending, of course, but Kiva claims to have a 96% repayment rate for their loans. Just remember, you’re not doing this as an investment, you’re doing it to help out another person.
Learn more about Kiva.
What is peer-to-peer lending?
As the name suggests, peer-to-peer lending involves private individuals making loans to other individuals. The system runs contrary to the traditional model of banks and credit unions providing financial services because it cuts out the middleman.
While peer-to-peer lending had a surge in users over the past decade, in the past few years, some P2P lending companies have shuttered their services, including StreetShares, Peerform, and LendingClub.
How does peer-to-peer lending work?
Peer-to-peer lending shares many similarities with traditional lending:
You fill out an application with your financial and personal information, including the loan’s size, tax returns, and government-issued identification.
The lender will review your application before posting it on the site for investors.
Investors get to play the part of a loan officer, reviewing a list of applications and deciding where they might want to contribute.
The platform will indicate how risky the loan is and the potential return on investment.
Funding takes anywhere from one day up to two weeks.
Is peer-to-peer lending safe?
No one would say that peer-to-peer lending is 100% safe. No form of investing is. Many of the best peer-to-peer lending sites vet borrowers and investors to mitigate risk. The review process helps eliminate untrustworthy candidates, so borrowers can receive their loan and investors can earn interest.
Read more: Should you invest in peer-to-peer loans?
Pros & cons of P2P lending for investors
Pros
An attractive alternative to more traditional investments — You can round out your portfolio that might exclusively include stocks, bonds, and mutual funds. Some platforms merge private and public equities, so you can make all your investments in one place.
Most lending platforms let you select multiple loans at once — The variation enables you to reduce your risk exposure while potentially earning higher yields than a CD or savings account.
Feel good about your contribution — With sites like Kiva, you know that your money is going toward a humanitarian purpose.
Cons
Risk of default — When you lend money to individuals, you risk them defaulting. Peer-to-peer lending sites don’t come with FDIC insurance like a CD or savings account.
P2P loans lack the liquidity of stocks or bonds — Most loans are for three to five years, so you would have to wait until then to withdraw money.
Inequality — Some platforms, such as Funding Circle, only give access to accredited investors, so not everyone has equal access to lending opportunities.
Pros & cons of P2P lending for borrowers
Pros
You can circumvent the traditional bureaucracy of brick-and-mortar banks — Instead of waiting in line and negotiating with a loan officer, you have access to a fast, online experience. Because online platforms don’t have to worry about physical overhead, many can give borrowers competitive interest rates.
P2P loans typically aren’t as strict as banks or credit unions — The lax approach makes it easier to secure a loan if you have fair or poor credit history.
Often no prepayment penalties — You don’t have to worry about prepayment penalties in many cases.
Cons
Borrowers face more hurdles if they have a low credit score — Interest rates can go as high as 36% for those with lower scores, while some platforms don’t offer financial services to anyone with a credit score below 630.
Possibly high fees — Some sites have origination fees of 6%.
Impersonal — If you want the old-fashioned face-to-face borrowing experience, peer-to-peer lending isn’t for you. You don’t have a chance to sit down with your lender and hash out terms.
Loan caps around $50,000 — If you need more money, you’ll likely have to go to a bank or credit union.
Summary
Peer-to-peer lending is a great option for borrowers with less-than-stellar credit who want access to capital with reasonable terms and rates. P2P lending is ideal for small businesses and individuals who are looking for a personal loan that does not require mountains of paperwork, and that is funded quickly (usually within a few days).
But not all P2P lending platforms operate the same, and some can charge high origination fees and interest rates. Others require high minimum loan amounts to borrow as well, making them less accessible to some borrowers.
Investors can earn decent returns with P2P lending, but there is also the risk of default and the mess of going through collections agencies occasionally. Finding a solid platform with detailed risk mitigation strategies (such as borrower scores), and insurance against default can help alleviate these concerns, but it may eat into your profits.
While peer-to-peer lending is not seeing the massive growth of a few years ago, it is still a solid option for borrowers and investors alike.
When I worked in management consulting, one of my responsibilities was to help my company figure out ways to make money while we slept. As a consulting business, our revenue stream came from selling the hours of the people who worked at our company. But to grow our margins, we knew we had to scale our time. This is where I first learned about passive income — the Holy Grail of the business world.
Now that I’m in my 30s, I think a lot about how to direct my active streams of income into passive income opportunities. Here are some things I’ve learned about active and passive income in my wealth-building journey.
What’s Ahead:
What Is Active Income?
Active income is earned by trading your time for money. Most people at the beginning of their careers are focused solely on earning active income to make a living.
What Is Passive Income?
Passive income is earned from income-producing assets. Someone who has passive income is not trading their time for money. Instead, the assets they own produce income without much involvement from the owner of the asset.
With the rise of financial influencers and the FIRE movement, finding ways to earn passive income has become a popular topic in the personal finance community.
Is Any Income Truly ‘Passive’?
The idea of earning truly passive income sounds amazing, right? But what’s often not discussed about passive income is that unless you inherit passive income-producing assets, creating passive income streams actually requires a substantial amount of active work.
Famous American entrepreneur Gary Vaynerchuk has gone as far as to say that truly passive income doesn’t exist outside of passive public market investing and rental income.
I tend to agree with Gary that the term ‘passive’ income is something of a misnomer. Creating passive income is never truly passive; there is no free lunch when it comes to financial mobility!
But thinking of income in active and passive terms might nonetheless have some benefits for those who are assessing their current financial status and crafting their wealth-building strategy. For that reason, I’ll break down the broad differences between active and passive income streams, as well as the most prominent ways to generate active or passive income.
Pros & Cons of Active Income
Pros
Allows you to develop a specific skill or expertise consistently
May provide social interaction and camaraderie associated with a traditional worksite
Cons
Trades time for money
Takes time away from doing other things
Cannot scale income potential beyond time constraints
Can be taxed at high rates
Pros & Cons of Passive Income
Pros
Generates money while sleeping, vacationing, etc.
Frees up more time for recreational activities
Subject to potential tax deductions
Scales income potential beyond time constraints
Does not require physical presence at a work site
Cons
Often requires you to create active income first
Usually harder to create than active income
Types of Active Income
Salary and Wages
The most basic and obvious form of active income is the salary that you earn from a typical job. A salary is a fixed amount received for working a regular schedule like 9 to 5, Monday through Friday. While a salary is a consistent form of active income, it can be taken away at a moment’s notice due to layoffs or downsizing. Most people earn their living from this type of income.
Bonuses and Commissions
Bonuses and commissions are other forms of active income. This type of income is not fixed and can vary dramatically based on the type of work performed. Many jobs can have a bonus or commission element added to a base salary, while other jobs can be 100% commission based.
Real estate agents, commercial real estate sales professionals, and other types of salespeople tend to fall into this income category. 100% commission-based jobs tend to have higher earning potential compared to salaried positions. However, they are also highly competitive, and their profitability is subject to ups and downs based on the economy, seasonality, and other factors.
Read more: How to Become a Real Estate Agent
Consulting and Freelancing
Freelancing and consulting fees are other types of active income that can either make up 100% of one’s income or serve as a side hustle. Those with valuable skills in high demand are often able to build side businesses, selling their time for specific short-term projects or long-term contracts. As of August 2021, there are 57 million freelancers working in the U.S., with 10 million more considering freelancing.
Looking ahead, more and more businesses are noting they’re willing to hire freelancers to support their mission, growth, and revenue.
Being a freelancer or consultant requires an entrepreneurial spirit, as this type of work can be very inconsistent and requires building a strong brand/reputation. Some of the most popular types of freelance work include graphic design, software development, copywriting, and photography.
Read more: 35+ Side Hustle Ideas
Equity Compensation
Equity compensation is a type of bonus that is given out at public or private companies to senior individuals or particularly valuable employees. Different types of equity compensation include straight shares, stock options, and Restricted Stock Units (RSUs).
It’s not uncommon for equity compensation to make up most of an individual’s income. For example, in 2020, 85% of an average CEO’s income was stock-related compensation.
Capital Gains
Buying and selling certain types of assets, like stocks and real estate, can generate capital gains if the asset’s sale price was higher than its original purchase price. For example, you might buy shares in a company while its stock price is low and then sell those shares later after the stock’s price has increased. The difference between the price you paid and the price you sold at is a capital gain.
Generating capital gains as a means of consistent income requires a significant amount of work, expertise, and risk-taking. Capital gains also have different tax treatments depending on how and when they are generated.
Read more: Claiming Capital Gains and Losses
Renting Out Property
Listing your property on sites like Airbnb can help you earn active income. While listing your property for rent may not require a significant investment of time and energy upfront, it’s not a set-it-and-forget-it income source.
Actively managing your listings, communicating with renters, and maintaining your property certainly requires active effort (unless you have a property manager).
Old Goods and Furniture Flipping
I’ve seen lots of people recently on TikTok and Instagram building side businesses by taking old or broken furniture, refurbishing it, and selling it for a profit. If you are handy and have an eye for design, this can be a great way of making active income given the low startup costs.
In addition to making money from selling the furniture, after you’ve built an audience you can sign brand partners and feature their products on your social media pages to generate even more income. Lastly, this type of business is a great way to help recycle old products that would have otherwise been thrown out.
Types of Passive Income
Interest and Dividends
Interest from your savings can be generated from high-yield savings accounts or by investing in CDs or bonds.
Dividends are paid to the shareholders of public companies. Not all companies pay dividends and the amount of dividends paid varies significantly. While earning dividends is passive income, choosing the right investments that generate dividends is a very active and time-consuming process.
In my experience, those looking to earn dividends can typically expect returns of 1–5%.
Rental Income
You can earn passive income from real estate by investing in rental properties, commercial real estate, public real estate investment trusts, or real estate crowdfunding platforms. Income-generating real estate can also provide landlords with tax benefits by deducting depreciation costs, property management expenses, insurance, and other expenses.
But there’s always an active element of real estate investing, no matter what type of real estate you invest in. This includes property management, dealing with tenants, managing relationships with lenders or investors, ensuring upkeep, or simply picking the right real estate projects to invest in. Some forms of real estate investing can become so time consuming that many personal finance experts question if real estate investing can be considered passive at all.
Read more: How to Invest in Real Estate
Peer-to-Peer (P2P) Lending
Peer-to-peer lending has attracted investors looking for an alternative to persistently low interest rates on savings accounts and bond yields. With P2P loans, investors make unsecured personal loans to others and can earn high returns.
While P2P lending has exploded in popularity (check out Lending Club and Prosper), these investments are very risky. The loans are often not secured against collateral, are not FDIC insured, and money invested in P2P lending can be difficult to access in times of economic stress.
Digital Product, Online Course, or Community Development
Creating digital products, courses, or online communities can be one of the best ways to earn passive income if you can package your skills and knowledge and sell it to a group of customers. In today’s digital age, the costs of creating a course, digital product, or community have never been lower, and all you really need is a computer and some creativity.
While there are lots of instances of everyday people earning millions on their digital products, don’t forget that getting to that point likely required a lot of work. Keeping these types of products relevant and up to date after launch also requires time, effort, and attention, not to mention having to market your product and keep up community engagement.
If you are interested in starting something like this up, platforms like Thinkific, Teachable, and Patreon are all options to explore.
YouTube/TikTok Ad Revenue
I became fascinated by the prospect of earning money on YouTube after coming across financial influencer Graham Stephan. Earning money on YouTube or Tik Tok generally comes down to building your channel’s audience and monetizing content through ads or affiliate marketing links. Once your presence meets a critical mass, every video you create has the potential to become an income-generating asset.
On the surface, making money on YouTube seems amazing, but again, it takes a lot of work and dedication to get there. For example, Graham has mentioned having to post videos at least three times a week for several years to get traction. And it often takes audiences of tens of thousands or hundreds of thousands of followers to earn any money.
But there’s lots of potential to earn sizable passive income from YouTube after you build an audience. The average YouTuber can make $3 to $5 per 1,000 video views and the top YouTubers can make millions annually.
Final Thoughts
Passive income can be a great way to earn more while working a regular 9 to 5, or it could fully replace your current stream(s) of active income entirely.
When it comes to building real wealth, however, the discussion around active vs. passive income is more nuanced.
According to a five-year study of 233 wealthy individuals, a common thread between them was that self-made millionaires generated income from multiple sources. 65% of them had three streams of income, 45% had four streams of income, and 29% had five or more streams of income.
These figures suggest that when it comes to building wealth, it’s not just a question of prioritizing passive vs. active income. Rather, it’s about generating multiple streams of income and scaling your time.
Personally, I have four streams of income:
The income I make from my 9 to 5
Investment capital gains
Dividends
Freelancing work
You can leave it to your own creativity and aspirations to find what constellation of passive and active income streams works best for you. But remember, whether you are looking to create passive or active income, there is no free lunch, and any source of income that ultimately becomes passive will likely start as a highly active pursuit.
In Best Low-Risk Investments for 2023, I provided a comprehensive list of low-risk investments with predictable returns. But it’s precisely because those returns are low-risk that they also provide relatively low returns.
In this article, we’re going to look at high-yield investments, many of which involve a higher degree of risk but are also likely to provide higher returns.
True enough, low-risk investments are the right investment solution for anyone who’s looking to preserve capital and still earn some income.
But if you’re more interested in the income side of an investment, accepting a bit of risk can produce significantly higher returns. And at the same time, these investments will generally be less risky than growth stocks and other high-risk/high-reward investments.
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Determine How Much Risk You’re Willing to Take On
The risk we’re talking about with these high-yield investments is the potential for you to lose money. As is true when investing in any asset, you need to begin by determining how much you’re willing to risk in the pursuit of higher returns.
Chasing “high-yield returns” will make you broke if you don’t have clear financial goals you’re working towards.
I’m going to present a large number of high-yield investments, each with its own degree of risk. The purpose is to help you evaluate the risk/reward potential of these investments when selecting the ones that will be right for you.
If you’re looking for investments that are completely safe, you should favor one or more of the highly liquid, low-yield vehicles covered in Best Low-Risk Investments for 2023. In this article, we’re going to be going for something a little bit different. As such, please note that this is not in any way a blanket recommendation of any particular investment.
Best High-Yield Investments for 2023
Table of Contents
Below is my list of the 18 best high-yield investments for 2023. They’re not ranked or listed in order of importance. That’s because each is a unique investment class that you will need to carefully evaluate for suitability within your own portfolio.
Be sure that any investment you do choose will be likely to provide the return you expect at an acceptable risk level for your own personal risk tolerance.
1. Treasury Inflation-Protected Securities (TIPS)
Let’s start with this one, if only because it’s on just about every list of high-yield investments, especially in the current environment of rising inflation. It may not actually be the best high-yield investment, but it does have its virtues and shouldn’t be overlooked.
Basically, TIPS are securities issued by the U.S. Treasury that are designed to accommodate inflation. They do pay regular interest, though it’s typically lower than the rate paid on ordinary Treasury securities of similar terms. The bonds are available with a minimum investment of $100, in terms of five, 10, and 30 years. And since they’re fully backed by the U.S. government, you are assured of receiving the full principal value if you hold a security until maturity.
But the real benefit—and the primary advantage—of these securities is the inflation principal additions. Each year, the Treasury will add an amount to the bond principal that’s commensurate with changes in the Consumer Price Index (CPI).
Fortunately, while the principal will be added when the CPI rises (as it nearly always does), none will be deducted if the index goes negative.
You can purchase TIPS through the U.S. Treasury’s investment portal, Treasury Direct. You can also hold the securities as well as redeem them on the same platform. There are no commissions or fees when buying securities.
On the downside, TIPS are purely a play on inflation since the base rates are fairly low. And while the principal additions will keep you even with inflation, you should know that they are taxable in the year received.
Still, TIPS are an excellent low-risk, high-yield investment during times of rising inflation—like now.
2. I Bonds
If you’re looking for a true low-risk, high-yield investment, look no further than Series I bonds. With the current surge in inflation, these bonds have become incredibly popular, though they are limited.
I bonds are currently paying 6.89%. They can be purchased electronically in denominations as little as $25. However, you are limited to purchasing no more than $10,000 in I bonds per calendar year. Since they are issued by the U.S. Treasury, they’re fully protected by the U.S. government. You can purchase them through the Treasury Department’s investment portal, TreasuryDirect.gov.
“The cash in my savings account is on fire,” groans Scott Lieberman, Founder of Touchdown Money. “Inflation has my money in flames, each month incinerating more and more. To defend against this, I purchased an I bond. When I decide to get my money back, the I bond will have been protected against inflation by being worth more than what I bought it for. I highly recommend getting yourself a super safe Series I bond with money you can stash away for at least one year.”
You may not be able to put your entire bond portfolio into Series I bonds. But just a small investment, at nearly 10%, can increase the overall return on your bond allocation.
3. Corporate Bonds
The average rate of return on a bank savings account is 0.33%. The average rate on a money market account is 0.09%, and 0.25% on a 12-month CD.
Now, there are some banks paying higher rates, but generally only in the 1%-plus range.
If you want higher returns on your fixed income portfolio, and you’re willing to accept a moderate level of risk, you can invest in corporate bonds. Not only do they pay higher rates than banks, but you can lock in those higher rates for many years.
For example, the average current yield on a AAA-rated corporate bond is 4.55%. Now that’s the rate for AAA bonds, which are the highest-rated securities. You can get even higher rates on bonds with lower ratings, which we will cover in the next section.
Corporate bonds sell in face amounts of $1,000, though the price may be higher or lower depending on where interest rates are. If you choose to buy individual corporate bonds, expect to buy them in lots of ten. That means you’ll likely need to invest $10,000 in a single issue. Brokers will typically charge a small per-bond fee on purchase and sale.
An alternative may be to take advantage of corporate bond funds. That will give you an opportunity to invest in a portfolio of bonds for as little as the price of one share of an ETF. And because they are ETFs, they can usually be bought and sold commission free.
You can typically purchase corporate bonds and bond funds through popular stock brokers, like Zacks Trade, TD Ameritrade.
Corporate Bond Risk
Be aware that the value of corporate bonds, particularly those with maturities greater than 10 years, can fall if interest rates rise. Conversely, the value of the bonds can rise if interest rates fall.
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4. High-Yield Bonds
In the previous section we talked about how interest rates on corporate bonds vary based on each bond issue’s rating. A AAA bond, being the safest, has the lowest yield. But a riskier bond, such as one rated BBB, will provide a higher rate of return.
If you’re looking to earn higher interest than you can with investment-grade corporate bonds, you can get those returns with so-called high-yield bonds. Because they have a lower rating, they pay higher interest, sometimes much higher.
The average yield on high-yield bonds is 8.29%. But that’s just an average. The yield on a bond rated B will be higher than one rated BB.
You should also be aware that, in addition to potential market value declines due to rising interest rates, high-yield bonds are more likely to default than investment-grade bonds. That’s why they pay higher interest rates. (They used to call these bonds “junk bonds,” but that kind of description is a marketing disaster.) Because of those twin risks, junk bonds should occupy only a small corner of your fixed-income portfolio.
High Yield Bond Risk
In a rapidly rising interest rate environment, high-yield bonds are more likely to default.
High-yield bonds can be purchased under similar terms and in the same places where you can trade corporate bonds. There are also ETFs that specialize in high-yield bonds and will be a better choice for most investors, since they will include diversification across many different bond issues.
5. Municipal Bonds
Just as corporations and the U.S. Treasury issue bonds, so do state and local governments. These are referred to as municipal bonds. They work much like other bond types, particularly corporates. They can be purchased in similar denominations through online brokers.
The main advantage enjoyed by municipal bonds is their tax-exempt status for federal income tax purposes. And if you purchase a municipal bond issued by your home state, or a municipality within that state, the interest will also be tax-exempt for state income tax purposes.
That makes municipal bonds an excellent source of tax-exempt income in a nonretirement account. (Because retirement accounts are tax-sheltered, it makes little sense to include municipal bonds in those accounts.)
Municipal bond rates are currently hovering just above 3% for AAA-rated bonds. And while that’s an impressive return by itself, it masks an even higher yield.
Because of their tax-exempt status, the effective yield on municipal bonds will be higher than the note rate. For example, if your combined federal and state marginal income tax rates are 25%, the effective yield on a municipal bond paying 3% will be 4%. That gives an effective rate comparable with AAA-rated corporate bonds.
Municipal bonds, like other bonds, are subject to market value fluctuations due to interest rate changes. And while it’s rare, there have been occasional defaults on these bonds.
Like corporate bonds, municipal bonds carry ratings that affect the interest rates they pay. You can investigate bond ratings through sources like Standard & Poor’s, Moody’s, and Fitch.
Fund
Symbol
Type
Current Yield
5 Average Annual Return
Vanguard Inflation-Protected Securities Fund
VIPSX
TIPS
0.06%
3.02%
SPDR® Portfolio Interm Term Corp Bond ETF
SPIB
Corporate
4.38%
1.44%
iShares Interest Rate Hedged High Yield Bond ETF
HYGH
High-Yield
5.19%
2.02%
Invesco VRDO Tax-Free ETF (PVI)
PVI
Municipal
0.53%
0.56%
6. Longer Term Certificates of Deposit (CDs)
This is another investment that falls under the low risk/relatively high return classification. As interest rates have risen in recent months, rates have crept up on certificates of deposit. Unlike just one year ago, CDs now merit consideration.
But the key is to invest in certificates with longer terms.
“Another lower-risk option is to consider a Certificate of Deposit (CD),” advises Lance C. Steiner, CFP at Buckingham Advisors. “Banks, credit unions, and many other financial institutions offer CDs with maturities ranging from 6 months to 60 months. Currently, a 6-month CD may pay between 0.75% and 1.25% where a 24-month CD may pay between 2.20% and 3.00%. We suggest considering a short-term ladder since interest rates are expected to continue rising.” (Stated interest rates for the high-yield savings and CDs were obtained at bankrate.com.)
Most banks offer certificates of deposit with terms as long as five years. Those typically have the highest yields.
But the longer term does involve at least a moderate level of risk. If you invest in a CD for five years that’s currently paying 3%, the risk is that interest rates will continue rising. If they do, you’ll miss out on the higher returns available on newer certificates. But the risk is still low overall since the bank guarantees to repay 100% of your principle upon certificate maturity.
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7. Peer-to-Peer (P2P) Lending
Do you know how banks borrow from you—at 1% interest—then loan the same money to your neighbor at rates sometimes as high as 20%? It’s quite a racket, and a profitable one at that.
But do you also know that you have the same opportunity as a bank? It’s an investing process known as peer-to-peer lending, or P2P for short.
P2P lending essentially eliminates the bank. As an investor, you’ll provide the funds for borrowers on a P2P platform. Most of these loans will be in the form of personal loans for a variety of purposes. But some can also be business loans, medical loans, and for other more specific purposes.
As an investor/lender, you get to keep more of the interest rate return on those loans. You can invest easily through online P2P platforms.
One popular example is Prosper. They offer primarily personal loans in amounts ranging between $2,000 and $40,000. You can invest in small slivers of these loans, referred to as “notes.” Notes can be purchased for as little as $25.
That small denomination will make it possible to diversify your investment across many different loans. You can even choose the loans you will invest in based on borrower credit scores, income, loan terms, and purposes.
Prosper, which has managed $20 billion in P2P loans since 2005, claims a historical average return of 5.7%. That’s a high rate of return on what is essentially a fixed-income investment. But that’s because there exists the possibility of loss due to borrower default.
However, you can minimize the likelihood of default by carefully choosing borrower loan quality. That means focusing on borrowers with higher credit scores, incomes, and more conservative loan purposes (like debt consolidation).
8. Real Estate Investment Trusts (REITs)
REITs are an excellent way to participate in real estate investment, and the return it provides, without large amounts of capital or the need to manage properties. They’re publicly traded, closed-end investment funds that can be bought and sold on major stock exchanges. They invest primarily in commercial real estate, like office buildings, retail space, and large apartment complexes.
If you’re planning to invest in a REIT, you should be aware that there are three different types.
“Equity REITs purchase commercial, industrial, or residential real estate properties,” reports Robert R. Johnson, PhD, CFA, CAIA, Professor of Finance, Heider College of Business, Creighton University and co-author of several books, including The Tools and Techniques Of Investment Planning, Strategic Value Investing and Investment Banking for Dummies. “Income is derived primarily from the rental on the properties, as well as from the sale of properties that have increased in value. Mortgage REITs invest in property mortgages. The income is primarily from the interest they earn on the mortgage loans. Hybrid REITs invest both directly in property and in mortgages on properties.”
Johnson also cautions:
“Investors should understand that equity REITs are more like stocks and mortgage REITs are more like bonds. Hybrid REITs are like a mix of stocks and bonds.”
Mortgage REITs, in particular, are an excellent way to earn steady dividend income without being closely tied to the stock market.
Examples of specific REITs are listed in the table below (source: Kiplinger):
REIT
Equity or Mortgage
Property Type
Dividend Yield
12 Month Return
Rexford Industrial Realty
REXR
Industrial warehouse space
2.02%
2.21%
Sun Communities
SUI
Manufactured housing, RVs, resorts, marinas
2.19%
-14.71%
American Tower
AMT
Multi-tenant cell towers
2.13%
-9.00%
Prologis
PLD
Industrial real estate
2.49%
-0.77%
Camden Property Trust
CPT
Apartment complexes
2.77%
-7.74%
Alexandria Real Estate Equities
ARE
Research Properties
3.14%
-23.72%
Digital Realty Trust
DLR
Data centers
3.83%
-17.72%
9. Real Estate Crowdfunding
If you prefer direct investment in a property of your choice, rather than a portfolio, you can invest in real estate crowdfunding. You invest your money, but management of the property will be handled by professionals. With real estate crowdfunding, you can pick out individual properties, or invest in nonpublic REITs that invest in very specific portfolios.
One of the best examples of real estate crowdfunding is Fundrise. That’s because you can invest with as little as $500 or create a customized portfolio with no more than $1,000. Not only does Fundrise charge low fees, but they also have multiple investment options. You can start small in managed investments, and eventually trade up to investing in individual deals.
One thing to be aware of with real estate crowdfunding is that many require accredited investor status. That means being high income, high net worth, or both. If you are an accredited investor, you’ll have many more choices in the real estate crowdfunding space.
If you are not an accredited investor, that doesn’t mean you’ll be prevented from investing in this asset class. Part of the reason why Fundrise is so popular is that they don’t require accredited investor status. There are other real estate crowdfunding platforms that do the same.
Just be careful if you want to invest in real estate through real estate crowdfunding platforms. You will be expected to tie your money up for several years, and early redemption is often not possible. And like most investments, there is the possibility of losing some or all your investment principal.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
10. Physical Real Estate
We’ve talked about investing in real estate through REITs and real estate crowdfunding. But you can also invest directly in physical property, including residential property or even commercial.
Owning real estate outright means you have complete control over the investment. And since real estate is a large-dollar investment, the potential returns are also large.
For starters, average annual returns on real estate are impressive. They’re even comparable to stocks. Residential real estate has generated average returns of 10.6%, while commercial property has returned an average of 9.5%.
Next, real estate has the potential to generate income from two directions, from rental income and capital gains. But because of high property values in many markets around the country, it will be difficult to purchase real estate that will produce a positive cash flow, at least in the first few years.
Generally speaking, capital gains are where the richest returns come from. Property purchased today could double or even triple in 20 years, creating a huge windfall. And this will be a long-term capital gain, to get the benefit of a lower tax bite.
Finally, there’s the leverage factor. You can typically purchase an investment property with a 20% down payment. That means you can purchase a $500,000 property with $100,000 out-of-pocket.
By calculating your capital gains on your upfront investment, the returns are truly staggering. If the $500,000 property doubles to $1 million in 20 years, the $500,000 profit generated will produce a 500% gain on your $100,000 investment.
On the negative side, real estate is certainly a very long-term investment. It also comes with high transaction fees, often as high as 10% of the sale price. And not only will it require a large down payment up front, but also substantial investment of time managing the property.
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11. High Dividend Stocks
“The best high-yield investment is dividend stocks,” declares Harry Turner, Founder at The Sovereign Investor. “While there is no guaranteed return with stocks, over the long term stocks have outperformed other investments such as bonds and real estate. Among stocks, dividend-paying stocks have outperformed non-dividend paying stocks by more than 2 percentage points per year on average over the last century. In addition, dividend stocks tend to be less volatile than non-dividend paying stocks, meaning they are less likely to lose value in downturns.”
You can certainly invest in individual stocks that pay high dividends. But a less risky way to do it, and one that will avoid individual stock selection, is to invest through a fund.
One of the most popular is the ProShares S&P 500 Dividend Aristocrat ETF (NOBL). It has provided a return of 1.67% in the 12 months ending May 31, and an average of 12.33% per year since the fund began in October 2013. The fund currently has a 1.92% dividend yield.
The so-called Dividend Aristocrats are popular because they represent 60+ S&P 500 companies, with a history of increasing their dividends for at least the past 25 years.
“Dividend Stocks are an excellent way to earn some quality yield on your investments while simultaneously keeping inflation at bay,” advises Lyle Solomon, Principal Attorney at Oak View Law Group, one of the largest law firms in America. “Dividends are usually paid out by well-established and successful companies that no longer need to reinvest all of the profits back into the business.”
It gets better. “These companies and their stocks are safer to invest in owing to their stature, large customer base, and hold over the markets,” adds Solomon. “The best part about dividend stocks is that many of these companies increase dividends year on year.”
The table below shows some popular dividend-paying stocks. Each is a so-called “Dividend Aristocrat”, which means it’s part of the S&P 500 and has increased its dividend in each of at least the past 25 years.
Company
Symbol
Dividend
Dividend Yield
AbbVie
ABBV
$5.64
3.80%
Armcor PLC
AMCR
$0.48
3.81%
Chevron
CVX
$5.68
3.94%
ExxonMobil
XOM
$3.52
4.04%
IBM
IBM
$6.60
5.15%
Realty Income Corp
O
$2.97
4.16%
Walgreen Boots Alliance
WBA
$1.92
4.97%
12. Preferred Stocks
Preferred stocks are a very specific type of dividend stock. Just like common stock, preferred stock represents an interest in a publicly traded company. They’re often thought of as something of a hybrid between stocks and bonds because they contain elements of both.
Though common stocks can pay dividends, they don’t always. Preferred stocks on the other hand, always pay dividends. Those dividends can be either a fixed amount or based on a variable dividend formula. For example, a company can base the dividend payout on a recognized index, like the LIBOR (London Inter-Bank Offered Rate). The percentage of dividend payout will then change as the index rate does.
Preferred stocks have two major advantages over common stock. First, as “preferred” securities, they have a priority on dividend payments. A company is required to pay their preferred shareholders dividends ahead of common stockholders. Second, preferred stocks have higher dividend yields than common stocks in the same company.
You can purchase preferred stock through online brokers, some of which are listed under “Growth Stocks” below.
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Preferred Stock Caveats
The disadvantage of preferred stocks is that they don’t entitle the holder to vote in corporate elections. But some preferred stocks offer a conversion option. You can exchange your preferred shares for a specific number of common stock shares in the company. Since the conversion will likely be exercised when the price of the common shares takes a big jump, there’s the potential for large capital gains—in addition to the higher dividend.
Be aware that preferred stocks can also be callable. That means the company can authorize the repurchase of the stock at its discretion. Most will likely do that at a time when interest rates are falling, and they no longer want to pay a higher dividend on the preferred stock.
Preferred stock may also have a maturity date, which is typically 30–40 years after its original issuance. The company will typically redeem the shares at the original issue price, eliminating the possibility of capital gains.
Not all companies issue preferred stock. If you choose this investment, be sure it’s with a company that’s well-established and has strong financials. You should also pay close attention to the details of the issuance, including and especially any callability provisions, dividend formulas, and maturity dates.
13. Growth Stocks
This sector is likely the highest risk investment on this list. But it also may be the one with the highest yield, at least over the long term. That’s why we’re including it on this list.
Based on the S&P 500 index, stocks have returned an average of 10% per year for the past 50 years. But it is important to realize that’s only an average. The market may rise 40% one year, then fall 20% the next. To be successful with this investment, you must be committed for the long haul, up to and including several decades.
And because of the potential wide swings, growth stocks are not recommended for funds that will be needed within the next few years. In general, growth stocks work best for retirement plans. That’s where they’ll have the necessary decades to build and compound.
Since most of the return on growth stocks is from capital gains, you’ll get the benefit of lower long-term capital gains tax rates, at least with securities held in a taxable account. (The better news is capital gains on investments held in retirement accounts are tax-deferred until retirement.)
You can choose to invest in individual stocks, but that’s a fairly high-maintenance undertaking. A better way may be to simply invest in ETFs tied to popular indexes. For example, ETFs based on the S&P 500 are very popular among investors.
You can purchase growth stocks and growth stock ETFs commission free with brokers like M1 Finance, Zacks Trade, Wealthsimple.
14. Annuities
Annuities are something like creating your own private pension. It’s an investment contract you take with an insurance company, in which you invest a certain amount of money in exchange for a specific income stream. They can be an excellent source of high yields because the return is locked in by the contract.
Annuities come in many different varieties. Two major classifications are immediate and deferred annuities. As the name implies, immediate annuities begin paying an income stream shortly after the contract begins.
Deferred annuities work something like retirement plans. You may deposit a fixed amount of money with the insurance company upfront or make regular installments. In either case, income payments will begin at a specified point in the future.
With deferred annuities, the income earned within the plan is tax-deferred and paid upon withdrawal. But unlike retirement accounts, annuity contributions are not tax-deductible. Investment returns can either be fixed-rate or variable-rate, depending on the specific annuity setup.
While annuities are an excellent idea and concept, the wide variety of plans as well as the many insurance companies and agents offering them, make them a potential minefield. For example, many annuities are riddled with high fees and are subject to limited withdrawal options.
Because they contain so many moving parts, any annuity contracts you plan to enter into should be carefully reviewed. Pay close attention to all the details, including the small ones. It is, after all, a contract, and therefore legally binding. For that reason, you may want to have a potential annuity reviewed by an attorney before finalizing the deal.
15. Alternative Investments
Alternative investments cover a lot of territory. Examples include precious metals, commodities, private equity, art and collectibles, and digital assets. These fall more in the category of high risk/potential high reward, and you should proceed very carefully and with only the smallest slice of your portfolio.
To simplify the process of selecting alternative assets, you can invest through platforms such as Yieldstreet. With a single cash investment, you can invest in multiple alternatives.
“Investors can purchase real estate directly on Yieldstreet, through fractionalized investments in single deals,” offers Milind Mehere, Founder & Chief Executive Officer at Yieldstreet. “Investors can access private equity and private credit at high minimums by investing in a private market fund (think Blackstone or KKR, for instance). On Yieldstreet, they can have access to third-party funds at a fraction of the previously required minimums. Yieldstreet also offers venture capital (fractionalized) exposure directly. Buying a piece of blue-chip art can be expensive, and prohibitive for most investors, which is why Yieldstreet offers fractionalized assets to diversified art portfolios.”
Yieldstreet also provides access to digital asset investments, with the benefit of allocating to established professional funds, such as Pantera or Osprey Fund. The platform does not currently offer commodities but plans to do so in the future.
Access to wide array of alternative asset classes
Access to ultra-wealthy investments
Can invest for income or growth
Learn More Now
Alternative investments largely require thinking out-of-the-box. Some of the best investment opportunities are also the most unusual.
“The price of meat continues to rise, while agriculture remains a recession-proof investment as consumer demand for food is largely inelastic,” reports Chris Rawley, CEO of Harvest Returns, a platform for investing in private agriculture companies. “Consequently, investors are seeing solid returns from high-yield, grass-fed cattle notes.”
16. Interest Bearing Crypto Accounts
Though the primary appeal of investing in cryptocurrency has been the meteoric rises in price, now that the trend seems to be in reverse, the better play may be in interest-bearing crypto accounts. A select group of crypto exchanges pays high interest on your crypto balance.
One example is Gemini. Not only do they provide an opportunity to buy, sell, and store more than 100 cryptocurrencies—plus non-fungible tokens (NFTs)—but they are currently paying 8.05% APY on your crypto balance through Gemini Earn.
In another variation of being able to earn money on crypto, Crypto.com pays rewards of up to 14.5% on crypto held on the platform. That’s the maximum rate, as rewards vary by crypto. For example, rewards on Bitcoin and Ethereum are paid at 6%, while stablecoins can earn 8.5%.
It’s important to be aware that when investing in cryptocurrency, you will not enjoy the benefit of FDIC insurance. That means you can lose money on your investment. But that’s why crypto exchanges pay such high rates of return, whether it’s in the form of interest or rewards.
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17. Crypto Staking
Another way to play cryptocurrency is a process known as crypto staking. This is where the crypto exchange pays you a certain percentage as compensation or rewards for monitoring a specific cryptocurrency. This is not like crypto mining, which brings crypto into existence. Instead, you’ll participate in writing that particular blockchain and monitoring its security.
“Crypto staking is a concept wherein you can buy and lock a cryptocurrency in a protocol, and you will earn rewards for the amount and time you have locked the cryptocurrency,” reports Oak View Law Group’s Lyle Solomon.
“The big downside to staking crypto is the value of cryptocurrencies, in general, is extremely volatile, and the value of your staked crypto may reduce drastically,” Solomon continues, “However, you can stake stable currencies like USDC, which have their value pegged to the U.S. dollar, and would imply you earn staked rewards without a massive decrease in the value of your investment.”
Much like earning interest and rewards on crypto, staking takes place on crypto exchanges. Two exchanges that feature staking include Coinbase and Kraken. These are two of the largest crypto exchanges in the industry, and they provide a wide range of crypto opportunities, in addition to staking.
Invest in Startup Businesses and Companies
Have you ever heard the term “angel investor”? That’s a private investor, usually, a high net worth individual, who provides capital to small businesses, often startups. That capital is in the form of equity. The angel investor invests money in a small business, becomes a part owner of the company, and is entitled to a share of the company’s earnings.
In most cases, the angel investor acts as a silent partner. That means he or she receives dividend distributions on the equity invested but doesn’t actually get involved in the management of the company.
It’s a potentially lucrative investment opportunity because small businesses have a way of becoming big businesses. As they grow, both your equity and your income from the business also grow. And if the business ever goes public, you could be looking at a life-changing windfall!
Easy Ways to Invest in Startup Businesses
Mainvest is a simple, easy way to invest in small businesses. It’s an online investment platform where you can get access to returns as high as 25%, with an investment of just $100. Mainvest offers vetted businesses (the acceptance rate is just 5% of business that apply) for you to invest in.
It collects revenue, which will be paid to you quarterly. And because the minimum required investment is so small, you can invest in several small businesses at the same time. One of the big advantages with Mainvest is that you are not required to be an accredited investor.
Still another opportunity is through Fundrise Innovation Fund. I’ve already covered how Fundrise is an excellent real estate crowdfunding platform. But through their recently launched Innovaton Fund, you’ll have opportunity to invest in high-growth private technology companies. As a fund, you’ll invest in a portfolio of late-stage tech companies, as well as some public equities.
The purpose of the fund is to provide high growth, and the fund is currently offering shares with a net asset value of $10. These are long-term investments, so you should expect to remain invested for at least five years. But you may receive dividends in the meantime.
Like Mainvest, the Fundrise Innovation Fund does not require you to be an accredited investor.
Low minimum investment – $10
Diversified real estate portfolio
Portfolio Transparency
Final Thoughts on High Yield Investing
Notice that I’ve included a mix of investments based on a combination of risk and return. The greater the risk associated with the investment, the higher the stated or expected return will be.
It’s important when choosing any of these investments that you thoroughly assess the risk involved with each, and not focus primarily on return. These are not 100% safe investments, like short-term CDs, short-term Treasury securities, savings accounts, or bank money market accounts.
Because there is risk associated with each, most are not suitable as short-term investments. They make most sense for long-term investment accounts, particularly retirement accounts.
For example, growth stocks—and most stocks, for that matter—should generally be in a retirement account. While there will be years when you will suffer losses in your position, you’ll have enough years to offset those losses between now and retirement.
Also, if you don’t understand any of the above investments, it will be best to avoid making them. And for more complicated investments, like annuities, you should consult with a professional to evaluate the suitability and all the provisions it contains.
FAQ’s on High Yield Investment Options
What investment has the highest yield?
The investment with the highest yield will vary depending on a number of factors, including current market conditions and the amount of risk an investor is willing to take on. Generally speaking, investments with the potential for high yields also come with a higher level of risk, so it’s important for investors to carefully consider their options and choose investments that align with their financial goals and risk tolerance.
Some examples of high-yield investments include:
1. Stocks: Some stocks may offer high dividend yields, which is the annual dividend payment a company makes to its shareholders, expressed as a percentage of the stock’s current market price.
2. Real estate: Investing in real estate, either directly by purchasing property or indirectly through a real estate investment trust (REIT), can potentially generate high returns in the form of rental income and appreciation of the property value.
3. High-yield bonds: High-yield bonds, also known as junk bonds, are bonds that are issued by companies with lower credit ratings and thus offer higher yields to compensate for the added risk.
4. Private lending: Investing in private loans, such as through peer-to-peer lending platforms, can potentially offer high yields, but it also carries a higher level of risk.
5. Commodities: Investing in commodities, such as precious metals or oil, can potentially generate high returns if the prices of those commodities rise. However, the prices of commodities can also be volatile and subject to market fluctuations.
It’s important to note that these are just examples and not recommendations. As with any investment, it’s crucial to carefully research and consider all the potential risks and rewards before making a decision.
Where can I invest my money to get high returns?
There are a number of places you can invest your money to get high returns. One option is to invest in stocks, which typically offer higher returns than other investment options. Another option is to invest in bonds, which are considered a relatively safe investment option.
You could also invest in real estate, which has the potential to provide high returns if done correctly. Finally, you could also invest in commodities, such as gold or silver, which can be a risky investment but can also offer high returns.
What investments can I make a 10% return?
It’s difficult to predict exactly what investments will generate a 10% return, as investment returns can vary depending on a number of factors, including market conditions and the performance of the specific investment. Some investments, such as stocks and real estate, have the potential to generate returns in excess of 10%, but they also come with a higher level of risk. It’s important to remember that past performance is not necessarily indicative of future results, and that all investments carry some degree of risk
Have you ever thought about doing a cash-out refinance on your home for investment?
A lot of people have.
I received exactly this question from a reader.
Reader Question
Hi Jeff,
Thanks for your videos and educational websites!
I know you are very busy and this may a simple answer so thank you if can take the time to answer!
Would you ever consider approving someone to taking a cash-out refi on the equity in their house to invest?
I have been approved for a VA 100% LTV cash-out refi at 4% and would give me 100k to play with.
With average ROI on peer to peer, Betterment, Fundrise, and S&P 500 index funds being 6-8%, it seems like this type of leveraging would work. However, this is my primary residence and there is an obvious risk. I could also use the 100k to help buy another property here in Las Vegas, using some of the 100k for a down and rent out the property.
BTW, I would be debt free other than the mortgage, have 50k available from a 401k loan if needed for an emergency, but with no savings. I have been told this is crazy, but some articles on leveraging seem otherwise as mortgages at low rates are good at fighting inflation, so I guess I am not sure how crazy this really is.
I would greatly appreciate a response and maybe an article or video covering this topic as I am sure there are others out there who may have the same questions.
My Thoughts
But rather than answering the question directly, I’m going to present the pros and cons of the strategy.
At the end, I’ll give my opinion.
The Pros of a Cash-Out Refinance on Your Home For Investment Purposes
The reader reports he’s been told the idea is crazy.
But it’s not without a few definite advantages.
Locking in a Very Low-Interest Rate
The 4% interest rate is certainly attractive.
It will be very difficult for the reader to borrow money at such a low rate from virtually any other source. And with rate inching up, he may be locking into the best rates for a very long time.
Even better, a home mortgage is very stable debt. He can lock in both the rate and the monthly payment for the length of the loan – presumably 30 years. A $100,000 loan at 4% would produce a payment of just $477 per month. That’s little more than a car payment. And it would give him access to $100,000 investment capital.
As long as he has both the income and job stability needed to carry the payment, the loan itself will be fairly low risk.
So far, so good!
The Leverage Factor
Let’s use an S&P 500 index fund as an example here.
The average annual rate of return on the index has been right around 10%.
Now that’s not the return year in, year out. But it is the average based on nearly 100 years.
If the reader can borrow $100,000 at 4%, and invest it and an average rate of return of 10%, he’ll have a net annual return of 6%.
(Actually, the spread is better than that, because as the loan amortizes, the interest being paid on it disappears.)
If the reader invests $100,000 in an S&P 500 index fund averaging 10% per year for the next 30 years, he’ll have $1,744,937.That gives the reader a better than 17 to 1 return on his borrowed investment.
If everything goes as planned, he’ll be a millionaire using the cash-out equity strategy.
That’s hard to argue against.
Rising Investment, Declining Debt
This adds an entire dimension to the strategy. Not only can the reader invest his way into millionaire status by doing a cash-out refinance for investment purposes, but at the end of 30 years, his mortgage is paid in full, and he’s once again in a debt-free home.
Not only does his investment grow to over $1 million, but over the 30 year term of the mortgage, the loan self-amortizes down to zero.
What could possibly go wrong?
That’s what we’re going to talk about next.
The Cons of a Cash-out Refinance on Your Home
This is where the prospect of doing a cash-out refinance on your home for investment purposes gets interesting.
Or more to the point, where it gets downright risky.
There are several risk factors the strategy creates.
Closing Costs and the VA Funding Fee
One of the major disadvantages with taking a new first mortgage are the closing costs involved.
Whenever you do a refinance, you’ll typically pay anywhere from 2% to 4% of the loan amount in closing costs.
This will include:
origination fees
application fee
attorney fee
appraisal
title search
title insurance
mortgage taxes
and about a dozen other expenses.
If the reader were to do a refinance for $100,000, he would only receive between $96,000 and $98,000 in cash.
Then there’s the VA Funding Fee.
This is a mortgage insurance premium charged on most VA loans at the time of closing. It’s usually added on top of the new loan amount.
The VA funding fee is between 2.15% to 3.30% of the new mortgage amount.
Were the reader to take a $100,000 mortgage, and the VA funding fee set at 2.5%, he’d owe $102,500.
Now… let’s combine the effects of both the closing costs in the VA funding fee. Let’s assume the closing costs are 3%.
The borrower will receive a net of $97,000 in cash. But he will owe $102,500. That is, he will pay $102,500 for the privilege of borrowing $97,000. That’s $5,500, which is nearly 5.7% of the cash proceeds!
Even if the reader gets a very low-interest rate on the new mortgage, he’s still paid a steep price for the loan.
From an investment standpoint, he’s starting out with a nearly 6% loss on his money!
I can’t recommend taking a guaranteed loss – upfront – for the purpose of pursuing uncertain returns.
It means you’re in a losing position from the very beginning.
The Interest on the Mortgage May No Longer be Tax Deductible
The Tax Cuts and Jobs Act was passed in December 2017, and applies to all activity from January 1, 2018, forward.
There are some changes in the tax law which were not favorable to real estate lending.
Under the previous tax law, a homeowner could deduct the interest paid on a mortgage of up to $1 million, if that money was used to build, acquire or renovate the home. They can also deduct interest on up to $100,000 of cash-out proceeds used for purposes unrelated to the home.
That could include paying off high interest credit card debts, paying for a child’s college education, investing, or even buying a new car.
But it looks like that’s changed under the new tax law.
Borrowing up $100,000 for purposes unrelated to your home, and deducting the interest looks to have been specifically eliminated by the new law.
It’s now widely assumed that cash-out equity on a new first mortgage is also no longer deductible.
Now the law is still brand-new and subject to both interpretation and even revision. But that’s where it stands right now.
There may be an even bigger obstacle that makes the cash-out interest deduction meaningless, anyway.
Under the new tax law, the standard deduction increases to $12,000 (from $6,350 under the previous law) for single taxpayers, and to $24,000 (up from $12,700 under the previous law) for married couples filing jointly. (Don’t get too excited – personal exemptions are eliminated, and combined with the standard deduction to create a higher limit.)
The long and short of it is with the higher standard deduction levels, it’s much less likely mortgage interest will be deductible anyway. Especially on the loan amount as low as $100,000, and no more than $4,000 in interest paid.
Using the Funds to Invest in Robo-advisors, the S&P 500 or Peer-to-Peer Investments (P2P)
The reader is correct that these investments have been providing steady returns, well in excess of the 4% he’ll be paying on a cash-out refinance.
In theory at least, if he can borrow at 4%, and invest at say, 10%, it’s a no-brainer. He’ll be getting a 6% annual return for doing virtually nothing. It sounds absolutely perfect.
But as the saying goes, if it looks too good to be true, it probably is.
I often recommend all of these investments, but not when debt is used to acquire them.
That changes the whole game.
Whenever you’re thinking about investing, you always must consider the risks involved.
The last nine years have somewhat distorted the traditional view of risk.
For example, the stock market has been up nine years in a row, without so much as a correction of greater than 10%. It’s easy to see why people might think the returns are automatic.
But they’re not.
Yes, it may have been, for the past nine years. But if you look back further, that certainly hasn’t been the case.
The market has gone up and down, and while it’s true that you come out ahead as long as you hold out for the long term, the debt situation changes the picture.
Matching a Certain Liability with Uncertain Investment Returns
Since he’ll be investing in the market with 100% borrowed funds, any losses will be magnified.
Something on the order of a 50% crash in stock prices, like what happened during the Dot.com Bust and the Financial Meltdown, could see the reader lose $50,000 in a similar crash.
But he’ll still owe $100,000 on his home.
This is where human emotion comes into the picture. Since he’s playing with borrowed money, there’s a good chance he’ll panic-sell his investments after taking that kind of loss.
If he does, his loss becomes permanent – and so does his debt.
The same will be true if he invests with a robo-advisor, or in P2P loans.
Robo-advisor returns are every bit as tied to the stock market as an S&P 500 index fund is. And P2P loan investments are not risk-free.
In fact, since most P2P investing and lending has taken place only since the Financial Meltdown, it’s not certain how they’ll perform should a similar crisis take place.
None of this is nearly as much a problem with straight-up investing based on saved capital.
But if your investment capital is coming from debt – especially 100% – it can’t be ignored.
It doesn’t make sense to match a certain liability with uncertain investment gains.
Using the Funds to Buy Investment Property in Las Vegas
In a lot of ways, this looks like the most risky investment play offered by the reader.
On the surface, it sounds almost logical – the reader will be borrowing against real estate, to buy more real estate. That seems to make a lot of sense.
But if we dig a little deeper, the Las Vegas market in particular was one of the worst hit in the last recession.
Peak-to-trough, property values fell on the order of 50%, between 2008 in 2012. Las Vegas was often referred to as the “foreclosure capital of America”.
I’m not implying the Las Vegas market is doomed to see this outcome again.
But the chart below from Zillow.com shows a potentially scary development:
The upside down U formation of the chart shows that current property values have once again reached peak levels.
That brings the question – which we cannot answer – what’s different this time? If prices collapsed after the last peak, there’s no guarantee it can’t happen again.
Once again, I’m not predicting that outcome.
But if you’re planning to invest in the Las Vegas market with 100% debt, it can’t be ignored either. In the last market crash, property values didn’t just decline – a lot of properties became downright unsalable at any price.
The nightmare scenario here would be a repeat of the 2009-2012 downturn, with the reader losing 100% of his investment. At the same time, he’ll still have the 100% loan on his home. Which at that point, might be more than the house is worth, creating a double jeopardy trap.
Once again, the idea sounds good in theory, and certainly makes sense against the recent run-up in prices.
But the “doomsday scenario” has to be considered, especially when you’re investing with that much leverage.
Putting Your Home at Risk
While I generally recommend against using debt for investment purposes, I have an even bigger problem when the source of the debt is the family homestead.
Borrowing money for investment purposes is always risky.
But when your home is the collateral for the loan, the risk is double. You not only have the risk that the investments you’re making may go sour, but also that you’ll put your home at risk in a losing venture.
Let’s say he invests the full $100,000. But due to leverage, the net value of that investment has declined to $25,000 in five years. That’s bad enough. But he’ll still owe $100,000 on his home.
And since it’s a 100% loan, his home is 100% at risk. The investment strategy didn’t pan out, but he’s still stuck with the liability.
It’ll be a double whammy if the money is used for the purchase of an investment property in your home market.
For example, should the Las Vegas market take a hit similar to what it did during the Financial Meltdown, he’ll not only lose equity in the investment property, but also in his home.
He could end up in a situation where he has negative equity in both the investment property and his home. That’s not just a bad investment – that’s a certified nightmare!
It could even lead him into bankruptcy court, or foreclosures on two properties – the primary residence and the investment property. The reader’s credit would pretty much be toast for the next 10 years.
Right now, he has zero risk on his home.
But if he does the 100% cash out, he’ll convert that zero risk to 100% risk. Given that the house is needed as a place to live, this is not a risk worth taking.
Final Thoughs
Can you tell that I don’t have a warm, fuzzy feeling about the strategy? I think you figure it out by the greater emphasis on Cons than on Pros where I come down on this question.
I think it’s an excellent idea in theory, but there’s just too much that can go wrong with it.
There are three other factors that lead me to believe this is probably not a good idea:
1. The Lack of Other Savings
The reader reports that he has “…50k available from a 401k loan if needed for emergency, but with no savings.”For me, that’s an instant red flag. Kudos to him for having no other debt, but the absence of savings – other than what he can borrow against his 401(k) plan – is setting off alarm bells.
To take on this kind of high risk investment scheme without a source of ready cash, exaggerates all of the risks.
Sure, he may be able to take a loan against his 401(k), but that creates yet another liability.
That that will need to be repaid, and it will become a lien against his only remaining unencumbered asset (the 401k).
If he has to borrow money to stay liquid during a crisis, it’s just a question of time before the strategy collapses.
2. The Reader’s Risk Tolerance
We have no idea what the reader’s risk tolerance is.
That’s important, especially when you’re constructing a complex investment strategy.
While it might seem the very fact he’s contemplating this is an indication he has a high risk tolerance, we can’t be certain. He’s basing his projections on optimistic outcomes – that the investments he makes with the borrowed money will produce positive returns.
What we don’t know, and what I ask the reader to consider, is how he would handle a big reversal.
For example, if he goes ahead with the loan, invests the money, and finds himself down 20% or 30% within the first couple of years, will he be able to sleep at night? Or will he instead contemplate an early exit strategy, that will leave him in a permanent weakened financial state?
These are real risks that investors face in the real world. At times, you will lose money. And how you react to that outcome can determine the success or failure of the strategy.
This is definitely a high risk/high reward plan. Unless he has the risk tolerance to handle it, it’s best not to even start.
On the flip side, just because you have the risk tolerance, doesn’t guarantee success.
3. Buying at a Market Peak
I don’t know who said it, but when asked where the market would go, his response was “The market will go up. And the market will go down”.
That’s a fact, and one that every investor has to accept.
This isn’t about market timing strategies, but about recognizing reality.
Here’s the problem: both the financial markets and real estate have been moving up steadily for the past nine years (but maybe a little bit less for real estate).
Sooner or later, all markets reverse. These markets will too.
I’m worried that the reader might be borrowing money to leverage investing at what could turn out to be the absolute worst time.
Ironically, a borrow-to-invest strategy is a lot less risky after market crashes.
But at that point, everyone’s too scared, and no one wants to do it. It’s only at market peaks, when people believe there’s no risk in the investment markets, that they think seriously about things like 100% home loans for investments.
In the end, the reader’s strategy could be a very good idea, but with very bad timing.
Worst Case Scenario: The Reader Loses His Home in Foreclosure
This is the one that seals the deal against for me. Doing a cash out refinance on your home for investment is definitely a high-risk strategy.
Heads you’re a millionaire, tails you’re homeless.
That’s not just risk, it’s serious risk. We don’t know if the reader also has a family.
I couldn’t recommend anyone with a family putting themselves in that position, even if the payoff were that high.
Based on the facts supplied by the reader, we’re looking at 100+% leverage – the 100% loan on his house, then additional (401k) debt if he runs into cash flow problems. That’s the kind of debt that will either make you rich, or lead you to the poor house.
Given that the reader has a debt-free home, no non-housing debt, and we can guess at least $100,000 in his 401(k), he’s in a pretty solid situation right now. Taking a 100% loan against his house, and relying on a 401(k) loan for emergencies, could change that situation in no more than a year or two.
If you are familiar with peer-to-peer (P2P) investing through sites such as Lending Club and Prosper, then you may be interested in learning about NSR Invest. The company provides a software service that works with major P2P lenders in helping investors on those platforms to better manage their portfolios.
NSR Invest will be particularly beneficial for people who want to invest in P2P loans, that don’t fit the do-it-yourself investor mold, and prefer to have a generous amount of help and support in the process.
In addition to helping individual investors, NSR Invest also enables financial advisors to offer plug-and-play Marketplace Lending investment opportunities to their clients.
About NSR Invest
Based in Denver, Colorado, NSR Invest began operations early in 2015, through the merger of Lend Academy Investments and Nickel Steamroller. The company is a registered investment advisor, bringing innovative financial products centered around a private fund and individually managed accounts. NSR Invest now assists thousands of clients managing more than $100 million in P2P loan investments.
The company specializes in the investing side of P2P lending sites. P2P lending is sweeping the lending world, by bringing borrowers and investors together on the same platforms to create loans without using the services of traditional banks. That direct relationship is resulting in what are often lower interest rates for borrowers, yet higher returns for investors. The elimination of the “middle man” – a.k.a., the bank – makes that possible, because it eliminates the lending costs that are part of mainstream banking.
NSR Invest works to streamline the investment process for P2P investors. Investors on P2P platforms must sift through hundreds of loans in order to find those that meet their own personal lending criteria. They must also build a portfolio of loans – or slivers of loans referred to as “notes” – that will minimize their downside risk.
That’s where NSR Invest comes into the picture. They provide the following resources to P2P investors:
Proprietary credit algorithms that target a higher rate of return, while reducing default risk
Auto-investing execution speeds allow faster access to the best quality loans
The ability to make P2P lending a totally hands-off effort for the investor
They provide a team committed to providing you with an “awesome experience” at every point in the investing process
In short, NSR Invest takes the mystery out of P2P investing, empowering you to improve your returns, while expending less effort in the process. They act as an investment management service for P2P investing, which frees up your time for better things.
Due to regulatory issues, NSR Invest is not yet available in the following nine states: Alabama, Maryland, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Pennsylvania, and Tennessee.
How NSR Invest Works
NSR Invest works with Lending Club, Prosper, and Funding Circle, and you can add those platforms to your NSR Invest platform right from the NSR Invest site. The site has full API integration with all three P2P platforms.
Fully-managed accounts. As the name implies, these accounts are directly managed by NSR Invest. They provide higher target returns, with lower target risk and volatility, all with a hands-off investment strategy, that requires little effort from the investor.
Fully managed accounts provide three account strategies:
Conservative – this strategy targets a 5% net return (after fees and expenses)
Balanced – this strategy targets a 7% net return
Assertive – this strategy targets a 10% net return
As of October 31, 2015, NSR Invest has achieved net performance of 5.48% on the Conservative strategy, 10.44% on the Balanced strategy, and 11.42% on the Assertive strategy. If these are better than the returns that you are now getting through your investments with Prosper or Lending Club , you need to check out NSR Invest.
Self-directed accounts. With these accounts you can choose to either use pre-built NSR Picks credit models, or fully customize your own investment strategy. You can also use a combination of methods.
Minimum account balance. Fully managed accounts require a minimum of $10,000. Self-directed accounts require a minimum of $5,000.
Accounts with NSR Invest can be canceled at any time, but require 14 days notice.
NSR Invest Features and Benefits
NSR Invest offers several advantages to the person who wants to invest in P2P loans, but either doesn’t fully understand that process, or doesn’t want to put in the time and effort that are necessary to build a large, well diversified portfolio of loans and notes, especially across several P2P platforms.
Back-test filter. This tool allows you to create and test your own filtering strategies. And once tested, you can use these strategies to create an auto investing capability.
Pricing and fees. NSR Invest charges fees only on the amount of idle cash and any investments made by NSR Invest, and only then when the aggregate balance of your account exceeds $20,000. For example, let’s say you have $100,000 in cash, and $50,000 in notes invested through Lending Club before signing up with NSR Invest. The fee would be charged only on the $100,000 in uninvested cash, and not on the existing $50,000 in notes that you already hold.
There are no setup fees of any kind when you begin the program. The annual fee on self-directed accounts is calculated on an account-by-account basis, and uses a mathematical equation to determine specifically what that will be. No estimated ranges are provided.
On Fully Managed Accounts, the annual fee is 0.60% of the account balance.
IRA and Trust accounts. You can set up an IRA through NSR Invest, and even roll over an existing 401(k) account into the IRA. You may also be able to set up a trust account, depending on the P2P platform that you are working with.
P2P Fund. This is something of a mutual fund for P2P investment platforms that is available through NSR Invest. The fund invests in loans originated by Lending Club, Prosper, Upstart, and Funding Circle. The fund targets a 10% net return after fees and expenses.
The minimum to invest in the fund is $250,000 – you must be an accredited investor in order to invest in the fund. The fund charges an annual fee equal to 1.5% of the investor’s account balance, charged on a monthly basis (0.125%).
Will NSR Invest Work For You?
If you have been attracted by the interest rate returns on P2P loan investments – and who wouldn’t be – you may want to consider doing it through NSR Invest. The service can handle investment selection for you, as well as the execution of purchases and the maintenance of your portfolio.
P2P investing can be highly rewarding, but it does require a considerable amount of time and attention. NSR Invest can remove that burden from you, and help you to best accomplish a low risk, high return portfolio balance.
If you have been toying with the idea of investing in P2P loans, or you are already doing it now but finding it tedious and time-consuming, give NSR Invest a try. Whether you are ready to invest 20,000 dollars or need to know what would be the best way to invest 500000 dollars, Good Financial Cents is here to help you!
When you look at Peerform reviews you first need to understand the difference between conventional loans and peer to peer loans. While traditional loans come from a bank and can take months to get done, P2P loans are done through a platform that connects investors and borrowers.
Peer-to-Peer lending sites are rapidly becoming preferred destinations for both borrowers and investors. Peerform is a newer member of the P2P Market and it provides opportunities for both borrowers and investors to get better rates than what they can get from banks or other traditional loan and investment sources.
About Peerform
Peerform was founded in 2010 by Wall Street executives with backgrounds in finance and technology. They started the platform because they realized that traditional lenders like banks seemed unwilling to provide loans for individual and small business owners.
The solution was to create a peer-to-peer lending platform that would bring both borrowers and loan investors together. This would also give investors an opportunity to earn much higher interest rates on their investments than what they could get through traditional bank investments like savings accounts, money market accounts, and certificates of deposit.
The platform is able to offer lower rates to borrowers, and higher rates to investors, because it lacks the physical infrastructure and employment base that banks have. The reduction in operating costs from running a technology driven online lending platform could be passed on both borrowers and investors.
Peerform is headquartered in New York City and has been featured in major media outlets, such as Time and The Street. Peerform is currently eligible to make loans to residents in the 36 following states: Alaska, Alabama, Arkansas, Arizona, California, Delaware, Florida, Georgia, Hawaii, Illinois, Kentucky, Louisiana, Massachusetts, Maryland, Michigan, Minnesota, Missouri, Mississippi, Montana, North Carolina, Nebraska, New Hampshire, New Jersey, New Mexico, Nevada, Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, Vermont, Washington, and Wisconsin.
Loans made on Peerform are underwritten by Cross River Bank, a federally insured New Jersey chartered bank and FDIC member.
Borrowing Through Peerform
The Peerform borrowing process is quick and simple, and you can use the loan proceeds for just about any purpose, including for business related needs.
Here are the highlights of the Peerform lending process:
Loan purpose. Peerform makes personal loans that can be used for a wide variety of purposes, including debt consolidation, credit card refinancing, home improvement, major purchases, car financing, business purposes, medical expenses, moving and relocation, wedding expenses, vacation, home buying, or other needs.
They also have a category referred to as a “green loan”. That’s where you take a personal loan and use it to purchase alternative energy equipment for your home. This typically can be something like solar panels for heat and hot water, or even the generation of electricity.
Loan amounts. Peerform will make loans that range in size $1,000 and $25,000.
Loan terms. All loans made through Peerform are for a term of 36 months. All loans are also fixed rate, installment loans that will be fully paid off at the end of the term. Peerform does not offer any other loan terms at this time.
Minimum borrower qualifications. In order to qualify for a loan with Peerform, you must have:
A minimum credit score of 600
No delinquencies, bankruptcies, tax liens, judgments, or non-medical related collections in the past 12 months
A minimum of one revolving account ever opened
A maximum debt-to-income ratio (DTI) of not more than 40% (not including mortgage debt)
A minimum of one open bank account
Although you don’t need to be employed, you do need to have an income which can be documented and verified. Also in regard to income, if you’re married, your spouse’s income cannot be used to qualify for the loan. Peerform provides personal loans, so you cannot include a cosigner for qualification purposes, nor make joint applications.
The loan application process. Peerform’s loan application uses a five step process:
Registration – This is an online registration that you can complete within a few minutes
Personal loan selection – After completing the online registration, the platform will review your information, and offer loan terms or alternatives.
Personal loan listing – After you have selected the loan terms that you want, your loan request is listed on the platform so that it can be evaluated by potential investors.
Verification – You will be asked to submit documentation that supports the information that you supplied in your registration form, or that will be needed to verify your identity.
The loan registration process will ask you to provide basic information, such as the loan amount you are requesting, the purpose of the loan, your credit score range, your full name, address, phone number, date of birth, email address, and annual salary and wages. You will then be asked to create a password.
Once you complete the registration form, you will be informed immediately if you qualify for a loan, and what the rate for that loan will be. Again, all loans are for a term of 36 months.
If you accept the offer, your loan request will be placed on the platform for investors to review and consider if they want to invest in it. You will also be taken through a step-by-step process to complete your application. Making application does not have any impact on your credit score.
Identity verification will involve you uploading copies of one of the following: your drivers license, military ID with photo, passport with photo, or US federal or state government ID. You will also be asked to verify your income. This will include two recent pay stubs, but they may also request recent tax returns and/or a copy of your bank statements.
Loan funding. In a best case scenario, your loan funds will be available shortly after the loan is put on the personal loan listing platform. However, all listed loans can remain on the platform for up to two weeks, which is known as the two-week listing period. You can track investor interest in your loan during the process.
But it is possible that your loan will not be fully funded within the two-week listing period. If it isn’t, you can either accept a lower loan amount (up to the amount funded), or you may need to reapply.
Interest rates and fees. Just like Lending club loans, interest rates with Peerfrom range between 7.12% APR and 29.99% APR. Rates are based on your Peerform Grade, and broken down into four alphabetic groups, each with its own rate range:
AAA, AA+, AA, A+ and A: 7.12% APR to 13.94% APR (credit score range: 700+)
BBB, BB+, BB, B+ and B: 14.86% APR to 19.44% APR (credit score range: 680 – 699)
CCC, CC+, CC, C+ and C: 20.87% APR to 26.92% APR (credit score range: 600 – 679)
DDD and DD+: 28.33% APR and 29..99% APR (credit score range: not indicated)
There are no application fees. There are however origination fees, typically 5.00% of the loan amount on all loans grades, except Peerform Grade loans AAA (1.00%), AA+ (2.00%) and AA (3.00%). The origination fee is deducted from your loan proceeds. For example, if your loan is $10,000, and the origination fee is 5.00%, you will receive net loan proceeds $9,500. The origination fee is payable only if the loan is issued.
The preferred loan repayment method by Peerform is by direct debits from your bank account. But you do have an option to pay by paper check. If you do, there is a $15 check processing fee for each check.
Late payments are assessed a fee of 5% of the monthly payment, subject to a $15 minimum per occurrence. There is also an unsuccessful payment fee in the event that your payment is refused. That fee is $15 per unsuccessful attempt, or a lesser amount as determined by state law.
There are no prepayment penalties in the event that you want to make a partial or full early payment on your loan.
Loan payments. You can repay your loan either by automatic draft from your bank account, or by mailing in monthly checks. However, Peerform does charge a fee of $15 per payment if you pay by check. There is no charge if you pay by automatic bank draft.
Site security. Peerform follows bank level security protocols, which includes encrypting and storing sensitive data in dedicated 24 hour maintain servers, which are protected with firewalls and housed in a secure facility. Servers are equipped with Secure Socket Layer (SSL) certificate technology to ensure encryption.
You also don’t need to concern yourself with the fact that investors will have access to your personal information. They will get only the information needed for investment purposes, but will not have access to any information that personally identifies you. In that way, you can apply for a loan anonymously, and not concern yourself that the information is available to someone who is either unintended or inconvenient, and certainly not for general public consumption.
Investing Through Peerform
If Peerform is a great place to get a loan, it’s also a rich source of investment opportunities.
Here is how investing through Peerform works:
Investor qualifications. In order to invest on Peerform, you must be an accredited investor. That’s an investor who is either high income or high net worth, or both, and who is generally recognized as a sophisticated investor who understands risk, knows how to invest into it, and is prepared to lose all of his or her investment (the temperament factor).
According to the US Securities and Exchange Commission, an accredited investor is defined as anyone who…
earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence).
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Investments offered. Peerform offers two types of investment products, whole loans and fractional loans. Whole loans are just what the name implies – you’re buying an entire loan. These investments are typically offered to institutions. Fractional loans are portions of loans, that are offered to individual investors.
These are not unlike investments on other P2P sites in which you can either invest in an entire loan, or in small pieces of many loans, commonly called notes.
All loans available for investment on Peerform are subject to analysis by the Peerform Loan Analyzer. The tool uses a highly advanced and dynamic algorithm for pricing loans. It uses empirical methods rather than filters (which are used on most P2P platforms) in order to better calculate consumer credit risk.
Custom portfolio. The portfolio enables you to diversify by customizing your investments to meet your needs. You can set investment goals, and the customization tool will outline how to invest your capital in order to reach your investment goals in the most concise way.
Fraud protection. Loan fraud is not uncommon and increases loan defaults, so Peerform takes extra steps to weed it out. In addition to requiring documentation to verify the borrower’s identity and income on the loan registration form, Peerform also uses both proprietary methods and commercially available licensed technologies and solutions to both detect and prevent fraud.
This includes third-party services such as Lexis Nexis for user identification, TransUnion for credit checks, and OFAC compliance.
Peerform also verifies that there is a variation of no more than 10% in the income stated by the borrower on the registration form, and that which is proven by the income documentation. If needed, IRS Form 4506T will be completed and sent to the IRS to verify the borrower’s income tax records. A small debit is taken from the borrower’s bank accounts, and verified by the borrower to make sure that the bank account is valid. The borrower’s phone number and email IP location are also verified.
Investment returns. Peerform offers rates of between 6.44% and 28.33% (net of origination fees). This rate range refers to returns before deducting for loan defaults, so your actual returns will be something less. .
Summary
Peerform is one of a growing number of P2P lending sites that also offers investment opportunities. The platform is using cutting edge technology to set the most accurate loan rates, which will also reduce the number of defaults that lowers the investment return on so many P2P lending sites.
Some people may have emergency savings to dip into or family or friends who can help them out if the unexpected happens. But for those who canât access such resources, help may come in the form of a hardship loan, a type of loan offered to help people get through financial challenges, such as unemployment […]
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