Here, Richard Litchfield from the peer-to-peer lending platform Lending Works explains how you can use this kind of investing to boost your freelancing income.
There are many benefits to going freelance: you can set your own schedule, work on projects you’re actually excited about, and create the perfect work-life balance for you. But, the nature of working in this way means that you’ll often be waiting around for invoices to be paid, and there will be months when you make a lot, as well as months when you make very little.
This means it’s wise to set up extra income streams and look for ways to help your money go further. One of they ways in which you can do this is by investing in peer-to-peer (P2P) lending. Here, I’m going to outline what that is, and how it could work for you.
What is peer-to-peer lending and how does it work?
Peer-to-peer lending is an alternative to the more traditional loans that banks and building societies offer. It’s a type of borrowing that happens between individuals without the involvement of a bank.
If you become a P2P investor, the process will begin when you decide how much you can afford to invest and sign up to a P2P platform. Then, you’ll need to decide how long you would like to lend your money for — generally, the longer the better, because this will allow you to make a bigger profit.
Once you’ve transferred some of your income into a P2P lending account, there will usually be two ways of getting started. Some platforms will make lending offers on your behalf, while others will allow you to do everything manually. Of course, doing everything yourself will give you the highest level of control, but it can also be time consuming. And, when you’re working as a freelancer, time is money, so you mightn’t have much to spare. Opting for a platform that offers an automated process will speed things up and ensure your money is always working for you.
Once your money has been matched with a borrower, you’ll begin to earn interest as they make repayments. Most platforms will then allow you to choose what you would like to do with these earnings. If you want your money to go as far as possible, it’s best to reinvest it if you can afford to. But, to supplement your freelancing income, you might want to withdraw some of your profits from your account on a monthly or weekly basis. And, you should also have the freedom to choose whether you want to withdraw the full repayments or just the interest you’ve made. Again, the more money you have in your account, the more you’re going to make. So, only taking the interest is a good way of seeing the highest possible returns while also having a regular income.
What are the benefits of peer-to-peer lending?
There are a number of advantages to choosing peer-to-peer lending over other saving and investment opportunities. For example, if you usually put your earnings into a savings account in the hope that you’ll accrue a decent level of interest, more often than not, you’ll find that P2P gives you much higher returns.
It’s also possible to diversify your portfolio through peer-to-peer lending, which reduces the risk to your assets. Depending on how much money you invest, you should be able to lend to a range of people, so you aren’t required to put all your eggs in one basket. This means, if someone defaults on their repayments, it won’t affect you too much because you’ll still be making money through your other borrowers.
Another benefit is that P2P is regulated by the Financial Conduct Authority and, as a result, platforms offering this service have to be upfront about the risks you might face and must have a plan to help you out if things go wrong. The best P2P companies will also have insurance and sometimes even a protection fund that they can use to offer you a high level of financial security.
Finally, because freelancing comes with a level of uncertainty, you might be hesitant to give up access to your money in case you need it at short notice. Fortunately, most P2P lending platforms will give you plenty of freedom to transfer money in and out of your account as it suits you (although you might be charged a small fee). Many other types of investment will ask you to make a long-term commitment, which is why peer-to-peer lending can work very well for people in your position.
When you go freelance, it’s likely you’ll find that work comes in waves. And, there will be times when you have to wait far too long for an invoice to be processed. This means you might want to get creative and look for ways to make your money go further, as well as secure a regular income. P2P lending is great for this, so it’s an investment opportunity that you should definitely consider.