Peer to peer lending – a fancy name for lending other folks money – has exploded in the last several years.
On the financial side, it is a risk similar to investing in the stock market. Returns at the major platforms like Lending Club and Prosper are may be as high as between 5-10% after defaults. Unlike the stock market however, you can’t depend on being able to sell your loans at any moment (though there is a secondary market where you can put them up for sale).
I have been a investor on Lending Club for over three years now and what is as important as the returns to me is that you are lending to individuals like you, at rates that are lower then what banks are willing to offer.
Essentially, you are helping to decentralize financial services, by independently lending to other individuals (albeit through a technology platform), and helping people achieve their goals by putting together dozens or hundreds of mini-loans from others.
Even though your investments are anonymous, you can choose to lend to people who are local based on the city and state listed (so you could decide only to lend to others living in your home state). You can also see on the individual loan listings the borrower’s employer, so if you don’t want to lend to people working in, say, financial services, you don’t have to – similarly if you want to support people working for specific types of organizations, you can look out for those as well.
Essentially, in addition to using financial indicators to determine who to loan to, you can also create your own social indicators.
Given the data available these could include:
- Location – choosing people within your city or state to lend to
- Employment status – choosing people who are self-employed
- Employer - choosing to lend to people who work for organizations you believe in, or not to lend to people working for organizations you don’t believe in
- Loan Purpose – choosing to lend to people for purposes you believe in. Lending Club, for example, has a “green/solar” loan purpose option
This data will help you align your investment more closely with your values, and remember that behind each mini-loan, there is a person’s story like this one: