The Human Side To Peer-To-Peer Lending

Peer-to-peer lending used to be a very big thing between 2012-2015. However, peer-to-peer lending has slowly declined in interest because returns haven't been as good as they once were. In fact, I rank peer-to-peer lending last in my best passive income rankings.

If you're interested in peer-to-peer lending, let me share my experiences. P2P is still a viable investment that generates income.

I started investing in LendingClub in 2013 and I've averaged a 7.2% annual return since. In the beginning, I really didn’t know what I was doing. But I was eager to try something new.

It sounded easy enough and the returns were quite appealing, especially since I was in the habit of just putting cash into CDs back then. So I funded my account. I picked a bunch of AA and A rated loans to start. Then out of laziness didn’t touch my account after that for the first year.

peer-to-peer lending

Peer-To-Peer Lending Investor

My lack of understanding how LendingClub works in my first year led me to end up with a chunk of cash just sitting in my account that I could have reinvested. It foolishly didn’t cross my mind that borrowers would be paying down their loans each month.

Some even payed off their loans in full way before their expiry (pre-payment risk for lenders). This would generate cash deposits into my account on a monthly basis.

It seems so obvious to me now, but it didn’t cross my mind back then. And because I wasn’t regularly logging in and didn’t have any auto invest settings turned on, I had no clue!

Fortunately, I set a goal in 2014 to stop hoarding cash and get more proactive in investing. Although I’ve always been pretty frugal with my money, I just wasn’t very good at actively investing my cash inflows in the past. And I was losing out on opportunities and performance as a result.

Although the impact of Coronavirus (COVID-19) on the peer-to-peer lending industry in 2020 is worrying. This pandemic is new. As a result, the vast majority of peer-to-peer investors are facing uncertain times. However, thanks to reasonable standards, solid security, and attractive interest rates, perhaps investors will do OK.

So how did I get motivated enough to stop being so aloof with my money? I decided to focus on my reasons for investing besides just making more money.

Peer-To-Peer Lending Can Help People

So what are my reasons for wanting to invest and grow my assets? Nothing earth shattering: I want to be able to maintain financial independence for the rest of my life.

I also want to be able to segue into a full time entrepreneurial career path (which I’m currently in the process of doing). I'd like to have the means to take care of my parents and family without financial stress. Finally, I want to be able to give back and help others.

A light bulb went off in my head. LendingClub is a perfect win-win investment opportunity for me. It enables me to get actively involved funding more loans so I can give back and help more people. At the same time, I can earn money in the process.

Instead of thinking about it as just a boring process of analyzing credit scores, number of defaults, and debt to income ratios, I changed my mindset.

There Are Real People With Real Borrowing Needs

I honed in on the benefits that as a lender, I’m able to help real people in need. While looking at loan applications may feel robotic, the borrowers on the other end are very human. They often are going through a lot of difficult emotions and financial stresses.

Those of us who have run into financial hardships at one point or another, and were able to bounce back through the help of a family bridge loan or our banks are quite fortunate. A lot of people aren’t so lucky.

Loans and refinances are hard to get these days, even for highly qualified individuals. Banks are super strict on debt to income ratios, credit history, reasons for the loan, and they’re slow. Even when it seems like everything is going smoothly for getting your loan approved, the bank can pull the rug out from under you at the last minute.

The Human Element Of Peer-To-Peer Lending

I was touched by the story in the video below of a woman who was initially approved a loan by her bank. However, she was later denied after she provided additional documentation because her bank decided the loan was a “bad investment” and an “excessive obligation.”

Fortunately, she got approved through LendingClub and is now able to provide full time care to her ailing mom.

There are many more incredible stories of real people who have been able to get a loan they otherwise wouldn’t have been able to obtain thanks to LendingClub.

The testimonials and wide range of life hurdles people have been able to overcome financially are heartwarming. I find it very inspiring to be able to invest and help people get back on their feet at the same time. Here are a few examples of how LendingClub and lenders are giving back:

  • Helped a man pay for heart surgery so he could live.
  • Approved a recession grad to consolidate her loans so she could follow her dreams in Chicago.
  • Gave a military couple the means to go to grad school and secure a better future for their family.
  • Helped a grieving grandmother pay for the unexpected burial expenses of her twin grandchildren.
  • Helped a struggling family afford surgery for a disabled puppy that couldn’t walk that came into their care. Now he’s running and jumping full speed on all four legs!
  • Assisted a single mom in getting her car out of the shop.
  • Helped a single mom pay for her son’s final semester in college.
  • Assisted a 15 year old Type 1 diabetic and his family pay off expensive medical bills.
  • Supported a retired couple pay off their high interest credit cards so they could finally go on their dream vacation to Maui.
  • Gave a couple with fertility challenges the means to get treatment, and now they are proud parents of a healthy baby girl.

After reading about many of these true financial and emotional hardships that people have gone through and overcome, I’m even more inspired to continue investing in peer-to-peer lending.

Knowing that being a lender is making an impact on other people’s lives and helping them when they’re down on their luck is definitely motivating. And being able to earn ~7% in performance on top of that feels like a getting a free sundae with a perfectly ripe bing cherry on top.

Peer-to-peer lending has its risks just like any investment. Just make sure you properly diversify your peer-to-peer lending lending portfolio as much as possible.

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Fundrise Due Diligence Funnel
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