Peer To Peer Lending websites such as LendingClub and Prosper seem like a great investment…however, these are some of the concerns to watch out for. Enjoy! Add me on Instagram: GPStephan
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For those of you who aren’t familiar with what Peer to Peer lending is:
These are websites like LendingClub and Prosper that act as an intermediary to match people who need to borrow money, with people who have money to lend. They’re pretty much offering YOU the opportunity to be the bank for someone else, and get paid back that interest.
However, these are my concerns:
First: Fees. As an investor, lending club charges a 1% fee on any payments you receive from the borrower…so already, whatever return you WERE getting, is now reduced by 1%.
Second: Defaults. If a borrower DOES NOT pay their loan, lending club charges a 40% fee on any amounts collected on a delinquent loan that went to litigation. According to them, they have an approximate default rate of about 7.8%. And keep in mind since the borrowers agreement is between themselves and lending club…not YOU and the borrower…you can’t do anything about it. You have no recourse.
Third: Lack of liquidity. Once you invest in a note, technically you’re tying up your money for 3-5 years until that loan matures…and that also assumes the borrower pays off the loan in time. If you need your money sooner, you’re forced to sell your loans on the secondary market…usually for a steep discount,
Fourth: Taxes then become an issue because your returns are seen by the IRS as ORDINARY INCOME, meaning they’re taxed at your highest marginal tax rate. And depending on how much you make, this could be a lot. Compare this to long term capital gains, which for most people is just a flat 15%.
Fifth: Risk of analyzing borrowers. Many P2P sites assume no risk in analyzing the credit worthiness of the borrowers. And this seems like people can easily take advantage of this.
Sixth: Default rates like this will ABSOLUTELY be going up if the economy begins to decline. The FIRST THINGS people stop paying is unsecured debt, like personal loans and credit cards…This leads me to think that whenever our economy begins to falter, the returns you’ll see on peer to peer lending websites will drop substantially, and at a time when you’ll WANT to have access to your money to invest in other opportunities, but you can’t because your money is tied up on these websites.
It’s for all of these reasons, you should do your own research to determine if peer to peer lending is right for you.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness @gmail.com
My ENTIRE Camera and Recording Equipment:
https://www.amazon.com/shop/grahamstephan?listId=2TNWZ7RP1P1EB
Favorite Credit Cards:
Chase Ink 100k Bonus Point Offer - https://www.referyourchasecard.com/21/ZVSGGIXM8U
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Join the private Real Estate Facebook Group:
https://www.facebook.com/groups/therealestatemillionairemastermind/
GET $50 OFF FOR A LIMITED TIME WITH COUPON CODE: THANKYOU50
The Real Estate Agent Academy: Learn how to start and grow your career as a Real Estate Agent to a Six-Figure Income, how to best build your network of clients, expand into luxury markets, and the exact steps I’ve used to grow my business from $0 to over $125 million in sales: https://goo.gl/UFpi4c
For those of you who aren’t familiar with what Peer to Peer lending is:
These are websites like LendingClub and Prosper that act as an intermediary to match people who need to borrow money, with people who have money to lend. They’re pretty much offering YOU the opportunity to be the bank for someone else, and get paid back that interest.
However, these are my concerns:
First: Fees. As an investor, lending club charges a 1% fee on any payments you receive from the borrower…so already, whatever return you WERE getting, is now reduced by 1%.
Second: Defaults. If a borrower DOES NOT pay their loan, lending club charges a 40% fee on any amounts collected on a delinquent loan that went to litigation. According to them, they have an approximate default rate of about 7.8%. And keep in mind since the borrowers agreement is between themselves and lending club…not YOU and the borrower…you can’t do anything about it. You have no recourse.
Third: Lack of liquidity. Once you invest in a note, technically you’re tying up your money for 3-5 years until that loan matures…and that also assumes the borrower pays off the loan in time. If you need your money sooner, you’re forced to sell your loans on the secondary market…usually for a steep discount,
Fourth: Taxes then become an issue because your returns are seen by the IRS as ORDINARY INCOME, meaning they’re taxed at your highest marginal tax rate. And depending on how much you make, this could be a lot. Compare this to long term capital gains, which for most people is just a flat 15%.
Fifth: Risk of analyzing borrowers. Many P2P sites assume no risk in analyzing the credit worthiness of the borrowers. And this seems like people can easily take advantage of this.
Sixth: Default rates like this will ABSOLUTELY be going up if the economy begins to decline. The FIRST THINGS people stop paying is unsecured debt, like personal loans and credit cards…This leads me to think that whenever our economy begins to falter, the returns you’ll see on peer to peer lending websites will drop substantially, and at a time when you’ll WANT to have access to your money to invest in other opportunities, but you can’t because your money is tied up on these websites.
It’s for all of these reasons, you should do your own research to determine if peer to peer lending is right for you.
For business or one-on-one real estate investing/real estate agent consulting inquiries, you can reach me at GrahamStephanBusiness @gmail.com
My ENTIRE Camera and Recording Equipment:
https://www.amazon.com/shop/grahamstephan?listId=2TNWZ7RP1P1EB
Favorite Credit Cards:
Chase Ink 100k Bonus Point Offer - https://www.referyourchasecard.com/21/ZVSGGIXM8U
American Express Platinum - http://refer.amex.us/GRAHASOxHd?XLINK=MYCP
Thanks for the video! Excellent!
Fast forward to now, they're recommended!! Thanks for the updated video
🤔 i was a member on peer too peer. Im not gonna lie. It seems that for a company that reports only 7.8% defaults. 🤔 as a user ob the website. It seems that defaults are frequent. 🤔 now i do understand how luck of the draw may play a role. But lets just say i was surprised too see so many of my (A ratings) being the ones who defaulted.
Thanks man. Great vid
I would like to see an upgraded video on your opinion of p2p, but this time utilizing prosper 's fine print. We are now in a recession, so it would be interesting to know the stats.
Good idea to find the way to fund many crooked borrowers 😂
Now Graham its time for 100k likes for you to invest 1k in lending club for us to view how it works.
If you wanna make money in lending, do it in old fashion like loan sharks and mafia’s. Using a brokerage gives you a little bit more than high yield saving accounts. I get Atleast 24% annually without fees. I deal directly with borrowers. I deal in cash only to avoid taxes.
Buy elsewhere, where?
In all fairness this study focusses on only one P2P Lending company. I am with one that's based in Europe and it seems like withdrawals are pretty quick meaning your investment is iiquid. It's a great way of having a good return on your cash whilst also being able to withdraw it quickly. I think that as the next recession looms I'll start to withdraw my money from it.
If ya boy Graham says don't do it, don't do it. It's that simple.
LendingCRAP
Is it a US centric perspective?
I'm looking for a safer return than the stock market right now and though P2P lending might be it, but after listening maybe not.
Gram could you make a video about where to park some cash and earn more than a 2 percent rate from a saving account?
Well I have found Europe p2p lending platforms that issues loans as short as 10 days with buyback guarantees and each loans can be as low as 10 dollars.
How about Quanloop? Seems much safer than what you described here. Very similar, but safer. Your money is frozen for 24h only. You can withdraw any day.
Everything you said in regard to lendersclub is absolutely true and I would never invest there. Having said that, there are many other much better plattforms with a lot better cost benefit analysis. Icome marketplace for example has skin in the game where the investor is treaded as priority party. Estateguru is backed up by real estate etc. I do not know if any of these arw available to you in the US since I am an investor from Germany, but in general those are not as bad.
My suggestion to everyone: watch "The Big Short". Then watch it again, and again, until you realize people LIE, all day, everyday to get your money.
Important to remember, that recession can hurt, as one is likely on the horizon!
Three years later still asking for likes
Seems this video hasn’t aged as well as hoped.
so this didn't age well.
Stated income is standard practice for smaller personal loans even at large banks.
so its better to be a borrower than a lended on these. especially if you have something that makes over 30% a year