Comments on: Would You Invest Your Money With Me Directly?

By: Lara

Lara — Tue, 27 Jul 2010 15:29:12 +0000

I think it’s a great idea, but that’s exactly what peer-to-peer lending is about. Prosper did a disastrous interpretation of it, while Lending Club seems to be working for both investors and borrowers. The fee they charge (1% to investors) is barely covering their operations. You must consider: collections cost, assessment cost (evluating borrowers), tax implications (is this a loan, a give away, an investment), regulation (is this a bank, a security), etc… not as simple as you make it sound. You’re being naive.

By: Greg

Greg — Tue, 27 Jul 2010 15:14:49 +0000

I know you wouldn’t. But, this is a classic set-up for a ponzi scheme (someone you trust, offering better than market returns). Be careful, you don’t want law enforcement knocking on your door.

By: Forest

Forest — Mon, 26 Jul 2010 12:09:20 +0000

I don’t have the cash to invest but if it was all legal and safely drawn up and I had the cash I would certainly consider a tiny amount to test it out.

By: Jenny

Jenny — Fri, 23 Jul 2010 18:54:05 +0000

Madison,

Would be interested in what the tax implications would be. One party may have to claim as income which could hurt for tax purposes. Other than that, I think it sounds like a good idea.

By: RWH

RWH — Fri, 23 Jul 2010 13:52:55 +0000

Madison,
I think there are some capital requirements in order to provide the services that you are investigating. Also, not knowing all that the new 2300 page bill that our President just signed… you may have some legal issues.

By: Benjamin Bankruptcy

Benjamin Bankruptcy — Fri, 23 Jul 2010 07:02:07 +0000

There is a reason that they charge the fee. It would it wouldn’t cover your administration costs of taking care of all of it. Lending is a volume business, you need scale to drive down the cost.

By: Budgeting in the Fun Stuff

Budgeting in the Fun Stuff — Thu, 22 Jul 2010 19:49:57 +0000

This made me smile because you’re proposing to be the opposite of a loan shark. Hahaha.

I’d invest like $500 or less with you, but I wouldn’t want to risk more since you could just die (heaven forbid) and leave everybody in the wind…FDIC insured sounds safer.

By: Madison

Madison — Thu, 22 Jul 2010 18:43:47 +0000

Marie, last time I checked, Lending Club only checked credit for borrowers. Did you try the lending side?

By: Madison

Madison — Thu, 22 Jul 2010 18:39:57 +0000

Jill, you’re too funny! I think genius might be a little overstated though!

By: Madison

Madison — Thu, 22 Jul 2010 18:38:34 +0000

Ethan,

Very excellent points. I appreciate hearing your thoughts on the diversification. You’re probably right, if it wasn’t me, I’d tell readers not to do this.

I need to find a way to run through the idea without my own thoughts getting in the way (like the fact that I know I’m honest.)

By: Madison

Madison — Thu, 22 Jul 2010 18:33:46 +0000

Thanks for the feedback! Although, I don’t think I’d want to be invested in the Tiger Woods brand right now!

By: Madison

Madison — Thu, 22 Jul 2010 18:32:32 +0000

When you put it that way, Tim, it does sound like incorporating a bank.

Yikes! Obviously that wouldn’t work. I’m wondering if there are some exclusions for direct personal loans..

By: Tim

Tim — Thu, 22 Jul 2010 17:51:04 +0000

It sounds like what you’re talking about doing is incorporating a bank. This is exactly what they do, “borrow” your deposits for a measly rate of 1%, then invest in stocks, commercial loans, high-yield bonds, etc.

While I’m no expert, I’m sure that creating a bank like this requires jumping through some regulatory hoops and dealing with an absurd amount of red tape. Plus like you say, not being FDIC insured could be a deal breaker…

By: kt- lifedividend

kt- lifedividend — Thu, 22 Jul 2010 16:37:39 +0000

i would only invest in you if you were a brand name like tiger woods or lebron or something. Other than that, no i cannot invest cash on a fellow human being. Good idea though; thinking out of the proverbial box. i like that

By: Ethan

Ethan — Thu, 22 Jul 2010 15:16:46 +0000

The problem is lack of diversification. The right way to be involved in peer-to-peer lending is to be well diversified among a large number of loans. In any market where diversification is possible, no premium is paid for the consolidation of one’s risk. This means that if you do not take advantage of the opportunity to diversify, you are taking on uncompensated risk. Being compensated for your risk is the purpose of investing.

In return for the consolidation of risk you should actually have to offer them a *higher* return. But you don’t have to – you could just take the existing terms from lenders who have diversified their risks via a platform like LendingClub. You are (rightly) unwilling to pay a premium to entice lenders to take an unnecessary risk.

Of course in principle each lender could give you only a small fraction of their P2P lending portfolio, but that probably isn’t realistic for either you or them. The overhead of borrowing a few thousand dollars in $25 chunks would wipe out the gain.

So I don’t think you should do this, on the principle that it would be a bad investment for your readers – regardless of how honest or credit-worthy you are. You can still get hit by a bus, become disabled, have major medical problems, etc.