When you think of a loan, the next things that usually come to mind are the negative aspects of loans: financial trouble, drowning in debt, and the stress of being unable to escape debt. Even if you always borrow from a reputable money lender Singapore, there’s always the risk of being stuck in debt for a long time.
But what if you could do the opposite? What if, instead of getting stuck in debt, loans can let you achieve passive income? Yes, it’s possible. Here are four ways to do it.
Use loans to purchase assets
Buying assets is the best way to earn money from loans. You could take out a business loan to get the capital you need for a small business, and as it grows, your profits will steadily increase. Pretty soon, you can use the income to pay off the business loan. Not only that, but your business will continue to earn profits well after you have paid off the loan.
That’s the best thing about purchasing assets through loans – they pay for themselves, and they will continue to earn money even after the loan is repaid.
Lend money to small businesses using peer-to-peer lending
Here, you are not the one taking out a loan. It’s the opposite – you’re letting other people borrow your money to fund their businesses. This is known as peer-to-peer (P2P) lending.
P2P lending lets business owners access pooled funds from many different investors. If you let others borrow money from you in a P2P lending platform, you essentially become an investor. You can lend either a small amount or a large sum, depending on your financial capacity.
Since you become the lender in this case, you can earn interest. On average, you’ll potentially earn 4 to 12% interest per year.
On the other hand, there’s always the risk of borrowers defaulting. You can lose all the money you lent as a result. Consider this risk when deciding how much to lend in a P2P platform.
Invest in bonds and treasury bills
If you don’t like the risk of defaulting, put some of your money in Singapore Savings Bonds (SSBs), corporate bonds, and treasury bills instead. These have guaranteed returns, as the borrowers are legally obliged to pay you back the amount you lent plus interest.
Bonds and treasury bills are low-risk. They’re great if you don’t like the higher risk profiles of other kinds of investments. On the other hand, their returns are also smaller, but you have more certainty of the amount you will get back.
Let other people borrow money from you
You can become a private money lender and let other people borrow from you. You can then earn interest just like a normal money lender.
Take note, though, that you must abide by the rules of the Moneylenders Act. If you don’t, you will be tagged as an ah long. Make sure you’re operating legally so people will trust you.
Conclusion
There are a number of ways you can use loans to earn passive income, just like the four methods described here. The most important thing to remember, though, is all loans carry risk. You should be wise with the money you lend. Keep the number one rule of investing in mind: Only lend an amount of money you can afford to lose.
david Miller is an experienced English language expert with a deep passion for helping others communicate effectively and confidently. With a background in linguistics and literature, He provides clear, accessible insights on grammar, writing, and communication strategies. Through well-researched articles and practical advice, David Miller aims to make language learning both inspiring and achievable for readers of all levels.