My always interesting and never dull experiment with peer to peer lending at lendingloop.ca continues.
To date, I’ve made 115 investments across Canada and 19 have been repaid.
The platform has seen some impressive growth–$43 Million dollars have been to lent to date!
The Ontario government is also joining in, lending up to $3M over the next two years.
Personally, I’m spending minimal time actually lending on Lending Loop. I’m mostly using the ‘auto-lend’ function to automatically invest for me. I still sleep well at night, knowing that my lazy cash is going to work for me.
Lending Loop: What You Need To Know
Lending Loop is a Canadian peer-to-peer lending company. They connect small business owners with individuals who want to invest. Here are some pros and cons:
Pros
1
Help Small Businesses
You’re investing in small businesses throughout Canada. You’re helping others to succeed and live out their own financial Nirvana!
2
Far better than any Posted Bank Rate
You can get a decent return on your investment that’s far better than any posted bank rate--and it beats inflation.
3
Easy Peasy Online Platform
It’s completely online, and so transferring money back and forth between your bank account and Lending Loop is easy peasy.
4
Can start Small
You can start investing with as little as $25.
5
Invest While you Sleep
You can choose to “auto lend” and determine what grade of loan to make. You can invest even while you’re sleeping!
Cons
1
Can't Sell Right Away
The investment you make is illiquid and it will take some time to get all of your money back, depending on how long the loan term is.
2
Not a Wealth Generator
I’ve found that it’s possible to generate income on the side through Lending Loop--but it’s not a vehicle for long term wealth generation.
3
'Auto-Lend' Limitations
You can’t “auto lend” based on the term of the loan. In order to choose a shorter loan, you have to manually choose it by logging in, rather than just using the “auto lend” function.
4
Still New
Despite its amazing growth and being backed by some government money, Lending Loop is still a startup.
5
Defaults are Reality
Only invest money that you’re willing to lose. People do sometimes default on their loans (but not as much as you might think).
Performance to date:
My loans are earning 9.9% (up 1.4% from previous years). This is far better than I expected.
That’s waaay better than the interest rates I’m getting from my savings account, where I’m getting barely 1% interest.
According to Statistics Canada, inflation has been hovering around 2%.
So really, I’m losing money every year having my money sit there in a savings account and do nothing.
It’s also encouraging to see that 99% of my principle is in good standing. Less than 1% is late.
Since 2015, I’ve had 2 charged off loans. That’s pretty good, I think! I’m helping others with their own businesses, and benefiting from their successes.
It seems like the people I’m lending to are serious about making it. Their determination rewards me, as an investor.
Here’s my performance to date:
My Investment Strategy: Risk Before Reward
Call me chicken. But, I’m a chicken who’s survived this long, and it doesn’t look like I’ll be anyone’s dinner any time soon!
On Lending Loop, you can find higher return options, like grade C,D,E loans that pay out 14%++ returns.
Loans on Lending Loop typically yield anywhere from 5.9% all the way to over 26.5%.
But I always look at risks before return.
I’ve focused mainly only on Grade A to B loans because I like investing in higher grade loans. That’s where my comfort zone lies.
I invest $25-50 per loan to make sure I’m diversified on the platform and that I’m not out too much if any one loan defaults.
You can go with a high risk strategy where you invest in a bunch of loans across lower grade notes (Grades C, D, E), but that should be an intentional move on your part.
The higher the interest rate, the higher the risk. So, on average, you should be returning much higher returns than I am–like 14% returns!
Lending Loop has estimated interest rates and loss rates, which are helpful if you want to try it out.
I’ve made 115 loans to date and only 2 of my loans have been charged off, with a few others ‘late’. I’m doing better than the estimates provided by Lending Loop.
So if you want to go mainly for C+ loans, expect 6% of your annual loans to default (source: https://www.lendingloop.ca/lenders).
BUT, please also note that you should expect more losses than I would because nothing comes with a free lunch. The higher the interest rate, the higher the risk you accept.
When to Abandon Lending Loop?
Lending Loop is a speculative investment. I personally like knowing that I’m helping small businesses across Canada. So when I lose a bit of money, I accept it and I’m okay with it.
If my overall returns drop significantly, like closer to 5%-6% return on investment, then I will drastically reduce my investments in Lending Loop.
What’s Your Minimum Return?
Think about the bare minimum return on investment that you can accept. Everyone’s risk tolerance is different. So think about what minimum % return on investment you will accept, let the money get to work, and sleep well at night.
Lending Loop Promo Code
Thanks to Lending Loop for supporting this blog. I am very excited that Canada has embraced peer to peer lending. And I’m so happy to be one of the 9,250+ active lenders helping businesses in Canada.
If you want to get started with an account of your own, be sure to hit up my affiliate link to get $25! It is a win-win situation. You get $25 for opening an account with a minimum investment of $1500 and you also help me out by supporting this blog.
If you hit up my affiliate link, I want to THANK YOU from the bottom of my heart. Part of the proceeds will be donated to non profit organizations.
P.S. Initiatives Financial Nirvana Mama have supported include: Harmony House, Plan International and fun financial literacy courses for young women