Peer-to-Peer Lending: Crazy Idea or Smart Investment?
June 4, 2008
Would you give $1,000 to a stranger? Who’ve you’ve never met in person? Who lives on the other side of the world?
Well, as crazy as this may seem, this is the concept behind the hot investment called Peer-to-Peer lending or P2P for those in the know. And I just read a great article about it by Farnoosh Torabi on TheStreet.com.
Yes, the idea is that you lend someone somewhere in the world a certain amount of money, say $1,000. And they promise to pay it back to you plus interest that can reach up to about 12%. And you do it all online.
So, you’re probably asking yourself two questions right now. The first one probably is “Are you crazy?” And the second one probably is “OK, how can I do it?”
Well yes, this could seem like a crazy, risky idea. But a lot of people have been doing it successfully for a while now. And with minimum loans as little as $50 and with average returns higher than your average savings accounts or CDs, P2P could be a way for you to make a nice return on your money.
If you’d like to check out P2P, visit the networks like Prosper.com, LendingClub.com and Zopa.com.
There, you’ll get all the details that you’ll need to become a lender. To a stranger. On the other side of the world. Who knows? You could make some crazy money.
So, is it something you’d even consider? Let us know.
Too much info. It’s overload. In my 401k I can only choose from a couple of mutual funds. How can I do a portfolio like this?
Well, I tell you, I’m the kind of guy who wouldn’t loan to family members…. And that’s with people I know! But it’s also because I know that they’re financially untrustworthy, that’s why I wouldn’t lend them money to begin with. (You can think I’m being mean about this, but in practice, lending to family and friends has caused me nothing but grief, regardless of whether I even get the money back or not.)
Now, you take the same kind of people with the same kind of credit scores and apply it to a whole bunch of strangers with absolutely no idea whether they will be able to pay it back or not? No thanks.
If I want to chase double digit returns, I’ll stick with growth stocks instead. At least I can read up on filings and see what their cash flow looks like. Put another way, I think the risk is higher than it needs to be for the given return.