loans — Beating Broke

Peer-to-Peer Investing Update Mid-2016

August 15, 2016 By Shane 1 Comment

It’s been a little while since I last wrote one of these updates. January of 2015 to be exact. Needless to say, there have been a few changes in my peer-to-peer investing in the last year and a half. One of the biggest changes, I’ll talk about below. First, let’s see where my peer-to-peer investing was when we last looked at it. (You can read the full post here, or just read the recap below.)

Peer-to-Peer at EOY 2014 (Recap)

The biggest change in my Lending Club account at the end of 2014 was the NAR (which is an adjusted rate of return) had dropped from a little over 13% in 2013 down to 9.61% at the end of 2014. Despite the drop, I felt like that was a pretty good rate of return, and reason enough to continue to invest in peer-to-peer lending.

Two other factors that I looked at were default loans and interest received. In 2014, there were 4 loans that had gone into default. There had been only one in 2013, but with an increase in investing on my part, the rise was somewhat expected. The total principle written off in 2014 was $41.87. Total interest minus fees for 2014 was $115.69. Take out the written off principle and you still get income on 2014 of $73.82. Again, not a bad little bit of semi-passive income.

Peer-to-Peer in 2015 and the first half of 2016

So, it’s been a year and a half since I last shared one of these updates. First, let me do a bit of a quick overview of where the account sits now, and then I’ll share some changes that have had some effect.

Peer-to-Peer income

Is Peer-to-Peer Investing Worth Your Time?

I like talking about the income (and resulting rate) first. Why? Because that’s the meaty money part of it. 🙂 And I like money. At the end of 2014, my NAR was 9.61%. Here we are in August of 2016, and my NAR is currently showing at 9.89%. It’s gone up! I love when that happens! There’s a couple of factors that likely have helped with that. The first is that there haven’t been any defaults since 2014. Right now, there are 3 loans that are threatening. 1 that’s in that nasty 31-120 days past due category. Typically, if they get that far, they’re as good as defaulted. We’ll see, but I fully expect that loan to go into default in the coming months. The other 2 are split between the Grace Period and 16-30 day categories. More often than not, those loans tend to come back to the current status. Having them default could eat into the income for 2016, but that’s one of the risks we take in investing for higher returns.

Peer-to-Peer Income 2015

2015 was a bit of an odd year. I didn’t pay nearly as much attention to the Lending Club account as I should have, and so, often when I would log in, I would have quite a bit of my portfolio sitting around doing nothing in the cash account. At one point, I had about 40% of the entire account sitting in cash because I hadn’t done anything with it in a while. That doesn’t equate to good income. For 2015, the interest minus fees only totaled up to $103.07. Down from 2014, but purely reflective of my inactivity in reinvesting the cash. The upside to 2015 was the lack of defaults. Because there weren’t any defaults, the income minus written off loans was still 103.07. That’s better than 2014, so even though my inactivity caused a reduction in gross income, it also may have sheltered me from defaults and thus preserved more of the income.

I’ve been a bit more active in 2016, and my income reflects it so far. As of the end of July, interest received minus fees was at $72.04. If that trend continues, 2016 will be slightly better than 2014. One of my goals when beginning this account was to achieve $10 per month in income. At this point, I’ve done that. I just have to remain active in reinvesting the funds in order to maintain that level. Next goal, $20 per month!

Peer-to-Peer Changes

One of the things that I wrote about in my “How I Invest” article was how I wasn’t eligible to directly invest or borrow because of the state that I lived in. Probably the most significant change since the end of 2014 is that my state is now eligible for both. I haven’t toyed with the borrowing side, but I have touched the direct investment side. My experience there is mixed. One of the things I like about it is that you aren’t paying any fees or premiums on the investments that you’re buying. That means you make more money over the life of the loan. That’s good. The downside, to me, is the delay in investment.

Direct Investing vs. Trading Platform

If you’re unfamiliar with how the direct side works, you basically go in and choose which loans to invest in. You’ve got some ability to filter, but not all the same ones that you have on the FolioFN site. Once you select some loans, you press the invest button. Here’s where the delay comes in. The loan only gets investing if it gets fully funded. So, if you invest in a loan early in the process, you could be waiting a while before there’s enough investor commitment to fully fund the loan. Once the loan is fully funded, it goes through a vesting process. The folks at Lending Club look it over, make sure everything is what it is supposed to be, and then the loan finally gets funded. And then you wait until the next pay date. All told, you’re money could be sitting in a committed status for a week or more waiting on all of those steps. Or, you could pay a small premium (you can filter based on the premium) on the FolioFN trading site and have your investment in your portfolio the next day.

After playing with the direct side, I can see myself using it occasionally, but really keep going back to the FolioFN trading site to do my investing. My thought is that the sooner my money is working for me, the sooner I’m making money with it.

Institutional Investors

I don’t know that this really qualifies as a change, but it’s something that’s been a topic of conversation a lot over the last year. And that’s the idea that there are institutions who are investing in peer-to-peer investments. One of the biggest issues that many seem to have with this is that it’s meant to be peer-to-peer (it’s right in the name!) not institution-to-individual. That’s how the traditional loan process works, not peer-to-peer!

Ok. I get that, but I think there’s also an argument that as the peer-to-peer movement grows, there’s going to be an increasing scale of demand for the loans. And if the individual investing side doesn’t grow as quickly, there will be a lot of loans that won’t get funded. It’ll look bad for business, plus it will drive away potential borrowers. I think as investors, we need to recognize that if borrowers are being driven away because of a low funding rate, it means less opportunity to invest. What we need to hope for at this point, is that the institutional investors are held at bay, and used for filling those funding gaps rather than let run amok and run the individual investors off.

My Peer-to-Peer Investing Going Forward

Much like many of my other updates, which you can read on my Lending Club page which has links to those and other related articles, I just don’t see any good reason to stop or even scale back my investment in peer-to-peer investing. The return remains excellent, and defaults remain low. As I’ve mentioned in other updates, I believe some of that is just plain luck, and some of it is due to scale. I’m only working with a little over $1000 in the account, so it’s pretty easy to be a bit picky when selecting loans to invest in. If I were working with a lot more money in my account, I couldn’t be as picky, and would likely see my rate drop some and my defaults rise.

The whole idea of this experiment (it’s really gone beyond an experiment now) was to let the account organically grow. Invest a bit of seed and reinvest the principle payments and interest so that it’s all working to make more money. In short, I’m letting the miracle of compounding interest work for me. And so far, it’s working quite well.

What are your experiences with Peer-to-Peer investing? Is it working for you? Do you have questions before you dip your toes in? Let me know in the comments!

5 of the Best Personal Loan Companies

February 9, 2016 By Thomas Bawdy 1 Comment

Personal loans can be instrumental in financing large purchases or bridging the gap between paychecks after a medical emergency or other costly event. Choosing a personal loan company is difficult because the vast number of companies is dizzying, and their terms and conditions differ from company to company. It can be tough finding a loan with an APR that doesn’t readjust itself or involve excessive origination fees. Meanwhile, other companies act as loan sharks, preying on the uninformed. Finding the right personal loan company for you can spell the difference between financial success and disaster.

Social Finance

Image via Flickr by GotCredit

Social Finance (SoFi) is an enticing option for taking a personal loan because you can see if you’re pre-qualified online. That means no fees and obligations, which instantly makes SoFi a fantastic option for those looking to take our their first loan. There are no origination fees, no application fees, no prepayment fees and no balance transfer fees. Loans are available from $5,000 to $100,000. SoFi offers APR rates from 5.5% to 9.99%. However, their unemployment protection available to all community members is their defining feature.

Upstart

Upstart offers personal loans for college grads with no credit history. Instead of relying solely on credit history to determine APRs and allowable loan amounts, they consider a grads degree and field of work to help those with ambitious futures achieve their goals more readily. APRs range from 4.67% to 25.27%.

Lending Club

This peer-to-peer lender doesn’t work with a bank in helping you acquire a loan. Approval decisions are based on more than credit history, taking into account personal accomplishments, education, and business savvy. Approval chances are high with loans from because investors have been eager to invest in peer-to-peer loans. Unfortunately, you won’t discover your interest rate until you apply, but don’t worry, you won’t be locked in after receiving this information. There is a one-time origination fee between 1.11% and 5% due at the end of the loan. Terms are available in 36 and 60 months.

Avant

Image via Flickr by LendingMemo

Avant is an online-only personal loan company that offers loans between $1,000 and $35,000. They offer loans at multiple credit levels starting with a FICO score of 600. Avant features next day deposits with proper documentation, so you can start acquiring your loan within 24 hours of applying. Avant offers APR between 9.95% and 36% with no prepayment penalty and no origination fee on unsecured loans. Avant is a great option if you need money now, and their solid rapport with clients is a testament to the quality of their service.

Prosper

Prosper is another peer-to-peer lender that uses an array of investors to fund a loan rather than a bank. Similar to Lending Club, approval rates are high because credit history isn’t the only factor determining whether you will be approved for a loan or not. However, the better your credit, the lower your APR. Prosper offers loans from $2,000 to $35,000 with a one-time closing fee of 2% to 5%.
Choosing a personal loan company can be scary. Nobody wants to feel like they’re being scammed or not getting the best deal possible. Next time you think about taking out a personal loan, keep in mind that these five companies are some of the best in the business.

Is Borrowing Yourself Out Of Debt A Good Idea Or An Oxymoron?

December 21, 2015 By Thomas Bawdy Leave a Comment

This post brought to you by Derek Fisher

We’ve all seen the reports on the news about how difficult it has been to obtain credit these last seven years, and it hasn’t gotten all that much easier since the announcement that the recession was “officially over.” While some people are indeed feeling the recovery, for many others most forms of credit have remained all but unobtainable.

There are, however, some credit vehicles that have remained available to many people throughout the difficult times, and which have continued to grow in popularity even more as the economy continues to recover. Unfortunately, many of these credit resources are very expensive, and could put the borrower at risk for even greater expense. Even more worrisome is that the approval policies for some forms of credit are structured to serve primarily higher-risk individuals, posing the same danger to the credit system as a whole as did the failed derivatives that were at the center of the near-collapse of the financial industry in 2008.

Personal Debt is Soaring

According to analysts at NerdWallet, as of the third quarter of 2015, the average U.S. household with debt carries $15,355 in credit card debt. That figure should give anyone pause. Even when other credit resources were unavailable or so conservative as to render them unavailable to the vast majority of individuals, credit card companies were less eager to lower account holders’ balances or cut them off completely, because the high interest rates and penalties charged on many if not most of those cards was just too lucrative to give up unless absolutely necessary.

The cost of that debt is soaring to an even greater degree. As cardholders use their cards more, including to pay recurring living expenses while paying at or near the minimum on a monthly basis, the balances on their cards never go down, as every cent of those minimum payments is applied to interest. Unfortunately for the cardholder, that interest continues to compound faster than the minimum payments can keep up with. When a person holds several credit card accounts, it can be awfully tempting to use the available balance on one to pay off or even make current payments on the others. It is a shell game in which the cardholder is always the loser.

Salaries Have Flatlined for Decades

The Economic Policy Institute reported that between 1945 and 1973, the hourly wages of most workers increased by 91%. During the period of 1973 to 2013, however, the hourly wages of a typical non-supervisory worker increased by only 9%, while worker productivity soared. Consider also that $100 in 1973 dollars, when adjusted for inflation, was the equivalent of $540 in 2013.

It is obvious that the economic deck is stacked against the average worker getting ahead.
So how can you reshuffle that stacked deck?

For some people, debt consolidation is the best solution to the problem that may very well be keeping them up at night. Instead of continuing to juggle payments among numerous creditors, you take out a new and bigger loan that consolidates the debts, so you will be paying only one bill to the new creditor. Most likely your monthly payment will be lower than the combined payments of your previous debts. Although some types of debt management or settlement, as well as bankruptcy, will put a “ding” on your credit report, debt consolidation won’t damage your credit because you are still paying off the entire amount you owe. If handled responsibly, debt consolidation can be the best way out of the hole in which you’ve dug yourself.

But it is important that you choose your lender carefully. When choosing a debt consolidation lender, don’t just settle for the company that promises the best average reduction in the amount of your debt. Consumer advocate Saundra Latham advises that the best debt consolidation lenders offer a balance of low fees, competitive interest rates, and flexible terms. Transparency and longevity are also important factors to consider, as well as credibility (it helps if you’re able to read other customers’ reviews of the lender). It is essential that you research your options using resources besides the lenders’ own ads and web sites.

Also be aware of the cons as well as the pros of taking out a debt consolidation loan. For instance if you use a secured loan, you risk losing the collateral associated with the loan (e.g., your house) if you fail to make payments. An unsecured debt consolidation loan is less risky in that regard, but you can still risk ruining your credit if you can’t keep up with payments. A debt consolidation loan is not without risks; many financial gurus warn against it unless you are truly struggling to make minimum payments, and — most important of all — have committed to turning over a new leaf with your spending habits. Also keep in mind that with a debt consolidation loan, you are fighting debt with more debt, and it may take years to pay it off.

For some people, however, debt consolidation is their last best hope. Though it may seem counter-intuitive, if handled responsibly debt consolidation can ultimately be the best path out of debt and back to creditworthiness.