Peer-to-peer lending allows the IRA to play the part a bank normally would in extending loans to individuals or entities seeking to borrow money.
As the IRA owner, you set the terms of the loan, which includes deciding the interest rate and negotiating a secured or non-secured loan.
Secured loans use the property as collateral. In case of default by the borrower, the IRA takes ownership of the property. Unsecured loans have more risk and typically carry higher interest rates since they are not backed by collateral.
Advantages of private lending with a self-directed IRA:
Different states may have varying rules that govern these types of investments structures. Be sure to consult with a trusted attorney or tax professional when using your self-directed IRA to invest in mortgages and notes.