Just in time for Valentine’s Day I have decided to try my hand at finding an online match. A succesful money match. I have decided to try peer to peer lending.
The rewards of peer to peer (p2p) lending are higher than I can achieve with any of my current investments. I would like to start funneling some of my available investment money to p2p.
This is a very new concept for me. This is what I have learned so far. P2p lending is also know as social lending because it uses internet based lending sites to match people with money with people who need or want money. Sort of like Match.com or Plenty Of Fish.
The loans are unsecured meaning there is no collateral (houses, cars or boats) to back up the loan. If the borrower defaults then there is no hard asset the lender can seize in lieu of the cash payments.
Borrowers that are at higher risk of defaulting are charged a higher interest rate. Lenders can choose riskier investments with high risk borrowers and possibly earn a high rate of return if the borrower pays. They risk losing their initial investment if the borrower defaults.
You can choose lower risk borrowers, people who are less likely to miss payments or default, but your return (interest rate earned on the loan) is lower.
There is a fee charged to both the borrower and the lender. The p2p company makes a profit regardless of the outcome of the transaction. The money is exchanged through the company. The borrower makes payments through the company to the lender.
Just like online dating services the borrowers and lenders don’t have to give their real information to each other. The p2p lending company knows your real information but names and social insurance numbers are not shared between potential suitors – just like E-Harmony. Potential borrowers have to complete an online form for credit purposes. This is how the p2p company decides the borrowers risk level.
The p2p companies are responsible for screening borrowers and attempting to collect loans that are not being repaid.
I think that p2p lending must attract people who are not succesful at getting loans at regular institutions. This is the risky part. If the borrowers can’t get money from an old school bricks and mortar bank why should I loan money to them?
I am looking for advice or links and personal experiences with p2p lending sites. I have found so much good information about American p2p lending but nothing that looks promising or safe in Canada.
I could quote Thomas Jefferson and say “With great risk comes great reward”. But instead I will quote Kin Hubbard “The safe way to double your money is to fold it over once and put it in your pocket”.
I am not sure I would do this with my savings. Do you know how the money is being used? Is it to catch up on bills or to fund a venture? What recourse is there if the loan payments come late, are partial or do not come at all? I wish you luck, but it seems a little unorthodox to me. But then again, “With great risk comes great reward”.
I completed an American application online as a potential borrower and you do have to state what the money is being used for but I could have put anything because the website has no way of checking.
The p2p company does attempt to collect the money but I have not found any information on how succesful they are.
The money I am investing is a small part of the money I invest with. I will start very small.
Don’t do it. I have noticed you have a gambling streak in you already. I am ultra conservative because I had lost a great deal of money in the stock market in the past. Many people tell me that I’m losing money to inflation, but as far as I’m concerned I can adjust to that compared to another big loss in the stock market. I feel you do not have enough to even gamble in the stock market considering the debt that you owe, let alone playing the peer to peer loaning game.
I have a bit of a gambling streak but I tend to allocate a certain amount of money to craziness and go conservative with the rest. My stocks are fairly conservative except for the bad decision to buy Shopper’s Drug Mart and I think that if I hold Shopper’s it will rise at some point when a big American pharmacy chain wants to buy it for easy access to the Canadian market.
I can get in on p2p with less than $1,000 and I would probably spread the money out between several loans and not pick the very risky ones. I have still not made a firm decision about it and I am still trying to learn more.
Did you lose in one of the big slides in the market?
The dot com bubble of 2001. Made huge amounts of money, over 100k then lost all of it, including my principal, 20k.
Oh dear. That would turn anyone off investing.
Awesome and best of luck. Let me know if you find one in Canada.
I have been reading that some people feel p2p lending is a pyramid scheme. I read several articles that were mainly opinion pieces about that. Still very unsure of this. I would try Lending Club but it is not available in Canada.
Lending Club and Prosper are actually rather credible companies. The thing is, they’ve only been around for about 6 years. I do have a small portion of my investments invested in P2P lending, but I’d really caution against it as your primary investing strategy. The returns look attractive, but what happens if we go into another recession? Index funds will eventually come back, most P2P borrowers will just default on their obligations and your investments will go to 0. Like I said, I’ve put my toes in the P2P water, but jumping in before you’ve invested in index funds feels a little misguided. Either way, good luck, and let me know how it goes!
I would like to try p2p but it is not available here. That probably kept me from making an unwise investment.
I’ve been using Zopa in the UK for a few months and so far so good. I have a relatively small amount at stake compared to other investments but my experience has been positive enough that I’m planning to put in a bit more at the end of the month.
I wish it was in Canada. Our regulations will not yet allow it. Canada is a great country but we are a little boring.
Sorry about the loss of your great Iron Lady.