I’ve been reading about P2P loans for the past few years but have been leery of tying up some of my money in it. P2P Lending allows individuals and businesses to borrow and lend money to each other. The capital risks mean that the lenders have to charge a high interest rate to offset the occasional defaults. Both companies had to “pause” in 2008 to register their lending activities with the SEC, but both have grown steadily since then. Yet years later, I am the only one in the group who is involved. Great point. It’s intentionally exclusionary to large groups of people. Casinos are happy to lend money to their biggest losers customers. "It is probable that the market will be reorganized as investors will flock to companies that have proven ability," said Kwon Dae-young, director general of the FSC's financial innovation bureau. I’m curious to hear their answer myself. Those loans (at APRs as high as 35%) will almost certainly have a higher default rate, which means that lenders will have to be especially vigilant about selection and diversification. My total interest received is DOUBLE my actual income due to the charge offs and fees. The new board members might not have the name recognition of Lending Club, but they’re all professional financial managers and experienced venture capitalists with experience and access to help. They don’t get anything up front, and they only make money if the lenders agree to fund the borrowers. The “peers” who lend you their money are hypothetically capable of understanding (and affording) these risks. Also, what are the potential tax issues?? Waiting on pins and needles for your next two posts. By cutting out most of the expenses (and all of the middlemen), the company could eke out a profit and then grow the business. Lending Club and Prosper didn’t just have to break the old rules– they had to write the new rule books and defend them to the regulatory authorities and their investors. I do it with Lending Club and have seen around 11% returns over the past few years. Both have extensive disclaimers and risk disclosures and a whole highway filled with signs claiming “Danger– excitement ahead! The nation's peer-to-peer (P2P) lending market has been losing its credibility, due to a snowballing delinquency rate in the industry and alleged investment fraud involving some well-known companies. This means that your loan will only be funded if enough suckers volunteers step forward to supply the cash. Yeah, I know, it’s good to have growth problems. Tera Funding, which has cumulatively extended the largest amount in loans of 1.4 trillion won ($1.1 billion) through the platform, had a 17.48 percent delinquency rate in late January, up 4.51 percentage points from a month earlier. Disclaimer: This is a privately owned website and is not affiliated with the U.S. government, Department of Defense, Department of Veterans Affairs, or any other government agency. Although lenders can sell their notes on a secondary exchange, the discounted price will almost certainly result in loss of interest & principal. Good luck with that. Current LC policy is that they want to talk to you individyually if you are investing a very large amount. So at this time prosper investments must be considered very UN-liquid . Prosper even targets the military for specific loan purposes, but you should check rates with both companies. They could continue to service your loan by collecting your payments and distributing them to the people who bought your loan. It’s likely that a single person with no dependents and few expenses could reasonably afford a 5k investment. Does any of your analysis require updating? However, the survival skills that got them here are irrelevant to their futures. Thanks, Mike! Thanks for asking, George! If you get a P2P loan to pay off the debt, you still have the problem of spending more money than you earn. If they charge too little then investors won’t buy their loans. 4. Two weeks have been 8-12 footers, and the rest of the days have been “just” 3-5. We try to address two of the major problems you mention with our LendingRobot.com service: one, the requirement to lurk their websites four times a day, two the deluge of filtering criteria. And then when you started working on the websites, you’d be at least as frustrated by the process. The FSC chairman, however, has been skeptical about stricter regulations, because it may hinder innovation in the financial industry here. If I left the other six for sale or a couple more weeks, who knows? I think the “bad luck” could also be called “system risk”, and there’s a lot of it. For free. Finally, you can almost always find a friend to lend you money (at least for the first loan) and when all else fails there’s the Family Bank of Mom & Dad. My family is from Michigan, which is closed to Lending Club (though open to Prosper). Again, great post! So far P2P only consists of less than 1% of my investable assets. Each company’s website lets you look at every loan– right down to the borrower’s personal appeal reason for borrowing your money. However, it still offers some incredible benefits: Read about these benefits in-depth here: What is Peer to Peer Lending? If they could sell high-yield loans to investors then they’d get more lenders. Risks & Regulations. But let’s be honest here: it’s sophisticated guessing at your default risk and how much interest you’re willing to pay. How long will it take for lenders to receive whatever funds they have on deposit with the loan processor? The P2P companies will survive only if they eventually earn more in fees than they spend in processing the loans (or collecting on them). If either group of execs really cared, they wouldn’t even try to compete. As in most areas in … The investigation over Popfunding shocked the P2P lending industry as the company was recognized as an example of financial innovation. In a decade of slow recovery, the rapid rise in asset prices has been the standout. 1) Prosper got rid of the trading platform, which makes Prosper investments COMPLETELY not liquid. Most people are interested in long-term investments, and over time this investment is easily beat out by the stock market. [Let me add a quick note about the links in this post. (Aggressive lenders think that low-quality borrowers will pay a disproportionately high-interest rate with an acceptable percentage of defaults.) Roger @ The Chicago Financial Planner says. The answer is simple: You’re spending more than you earn. And yes, this investment doesn’t earn a higher return than the stock market. You might even make money, but you’d make far more money by (as Jason writes) investing in yourself. Unfortunately, Lending Club and Prosper have been thinking about this customer acquisition paralysis issue for a lot longer than we lenders have. My financial advisor had barely heard of p to p when I mentioned it to him They’ll collect a funding fee from the borrower of 1%-5% of the loan amount, but that’s deducted when the money is sent to the borrower. I haven’t plowed through any Lending Club or Prosper 10Ks or 10Qs lately, but I bet they’ve added more knobs & levers to allow investors to “analyze” borrowers. This is because a $1,000 trial investment was all I could spare, and looking back you can see diversifying across just 40 notes was like playing with fire. If you’ve reached financial independence, then you’re thrilled to find a new source of passive investment income! This is the best south shore surfing season kickoff that I’ve had in my 11 years of surfing, and the old-timers say that it’s the best in at least 20 years! I think borrowers would only do better with a P2P loan if they possess the assets to pay off the debt in such a short term. However, the Lending Club chart in the same blog post shows that Prosper has a long competitive slog ahead of them. I’ve read through both documents several times, and I think I understand the contents, but I’m not an investment professional. Every day when I read or wrote, I was looking for the secret that would give me an incentive to sign up. You agree to pay the principal & interest on schedule, as well as any late fees. they’re practically rebooting the whole operation this year. And I’m actually doing much better than the predict. Institutional lenders have the assets (and the legal expertise) to perturb this process for months. Even entrepreneurs have better capital sources than P2P lending– assuming that entrepreneurs have a concept and a business plan worth funding in the first place, which gets back to the category of “problems that we gloss over”. If you’re solving the right problems then you don’t need a P2P loan. “I’m doing this with my friends. The biggest roadblock cited by my family? The platform is fairly liquid if people know how to work Folio. In the third case then you might be able to borrow from friends or family before approaching a P2P lender. That is particularly salient when you consider that the average return that retirement planinng projections quote is 7 or 8%.. in the ball park of what p2p so far has as a record. When they do save, they start with an emergency cushion and 401K (which makes sense). Those in brokerage houses could imitate this model (adding a layer of fees for account management). When a lender links their checking account to a P2P company, their funds go to an escrow account held with Wells Fargo. Borrowers might be tempted to stop paying money to a bankrupt company, but they’d be wise to continue paying their loans right on time. Filed Under: Money Management & Personal Finance. The website Boober.nl has been inaccessible for days and no one was available for comment as the phone went unanswered. A Legitimate Way to Repair You... USAA Answers Your Insurance And Financial Questions, About the Book – The Military Guide To Financial Independence & Retirement, About the Book – Raising Your Money-Savvy Family, the P2P companies and the lenders are both eager to lend you money, read more about angel investing at VentureHacks, cut your expenses and save for these goals, Here’s the second post, which reviews P2P loans from the borrower’s perspective, Here’s the third post, which reviews P2P loans from the lender’s perspective, The Military Guide to Financial Independence and Retirement, http://www.militarymoneymanual.com/lending-club/.