Comments on: Does Social Lending Offer Good Investments?

By: Joshua Bowman

Joshua Bowman — Fri, 25 Jun 2010 09:32:11 +0000

Lending Club goes up to G-rated loans at 20+%. I have a few.

By: James

James — Fri, 18 Jun 2010 20:02:06 +0000

Social lending can be a good thing but in my experience lending money to friends you need to be very confident that you will get your money back.

the best way to do this is to set a time frame and be very clear why they need a loan.

just like a banker would, don’t be afraid to ask the difficult questions in order to feel confident this is a smart person to lend money to.

By: CreditShout

CreditShout — Thu, 17 Jun 2010 19:47:08 +0000

I am also open to this possibility, as long as the lender is responsible and has a long history. It’s just another option that people should consider when borrowing money.

By: MoneyNing

MoneyNing — Thu, 17 Jun 2010 15:49:54 +0000

I don’t know about every social lending platform out there, but Lending Club for instance lets you sell your loans to a third party. Statistics have shown that if you mark your prices to be the outstanding value or less, it sells in 3-4 business days which is pretty liquid, and definitely much more liquid than buying an individual bond.

As to risks, it’s up for argument of course. A loan can go sour really quickly, but a stock can tank like no other too, even if they are solid, blue chip investments.

By: Bankruptcy Ben

Bankruptcy Ben — Thu, 17 Jun 2010 04:52:48 +0000

I’m open to the possibility of this being a good investment. I’m sure I can get a hire than bond rate and a borrower can get a lower than market interest rate it would be a win win right?

By: Yo Prinzel

Yo Prinzel — Wed, 16 Jun 2010 19:57:13 +0000

I really, really, really want to say yes. But no is a better answers. Social lending is not like buying a stock–there is no intrinsic value in the “position”, it’s illiquid and it’s a fixed investment. I’d liken it to investing in a bond but without safety nets beyond those set up by good intentions. But again, these loans don’t even have the liquidity of a bond, they are sometimes loaned to people who can’t get a conventional loan (And shouldn’t we be asking why?), and investors are also exposed to interest rate and other risks. Also, bonds can offer put options in the event of death–I doubt these loans do.

If a client asked me about further diversifying their portfolio with these types of “investments” I would strongly advise them not to. Strictly from a financial point of view.

From a personal point of view, these loans can really help individuals, which is an awesome thing in itself–but it not something to bank your retirement on. You can make a little bit of interest or feel really good about yourself when you make the loans, but if you are an investor with just a small amount of money, you’d be much, much, much better served with an IRA and a mutual fund. The risks are lower, potential returns greater, and liquidity much more… liquid.

By: MoneyNing

MoneyNing — Wed, 16 Jun 2010 16:46:22 +0000

As a social lender, I want to let everyone know that it’s just another type of investments. There are merits on the potential, but like any investment, knowledge is key to success.

Just as you shouldn’t invest in stocks unless you’ve done enough research on the company, you need to have sufficient knowledge about social lending before you start.

There’s a reason why big banks lend money based on statistical models instead of using a more subjective approach. It works.

With social lending, you HAVE to divide your loans up as much as possible and just accept the average based on your loan profile. Otherwise, you are setting yourself up for failure with any one default wiping out your returns (and possibly your principal).