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Is peer to peer lending like Prosper and Zopa suitable for a poor investor like me? May 16, 2008

Posted by deminvest in investment.
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Every now and then I read some enthusiastic article about marvels of peer to peer lending. Every-time I’m tempted to pitch a few hundred dollars in such innovative investment.

Peer to peer lending is very attractive. I have a few dollars to invest, someone else wants to borrow money. Why should we let banks earn more than half of the the interests that are paid?

Peer to peer lending sites like:

Prosper.com

and zopa.com

have auction-like system designed to give good returns to lender and reasonable interest rates to borrowers.

The reason why I still think Prosper, Zopa and other peer lending sites are unsuitable for poor investors like me it the fact that they still lack of a secondary market. Once I lend my money to someone trough Prosper or Zopa, It takes three years for me to get my money back month by month (with interests of course).

What if I need my money after a year? There is simply no way to recover it. I can’t accept that. i prefer to buy a Bond ETF, maybe get a bit lower interest, maybe pay some commissions, but I have to be able to get out of my investment any day.

Fortunately Prosper and zopa do have plans to build a secondary market. A place where a lender can simply sell his loan to other lenders. When they will have build such a market, I’ll start investing money in peer to peer lending because

yes, I hate Banks!

Comments»

1. Kevin - May 17, 2008

I would also like if Prosper and the rest were to become involved in micro-lending like Grameen Bank does. This is where you lend $50-$1000 to someone in a developing country so they can start their business. I really don’t trust Prosper because it seems that most of the people that want to borrow money are doing so to get out of credit card debt. All of a sudden these people are going to know how to manage their money. I would rather lend money to an entrepreneur than anyone else.

2. deminvest - May 17, 2008

I agree with you Kevin. Someone borrowing to get out of credit card debt should be considered risky. As a matter of fact, if credit cards charge those borrowers interests rates over 15% it means that they are considered to be at high default risk.


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