Is P2P lending legit?
For those that do not know what it is, it is known as “Peer-to-peer” lending. If you were to see some of the websites that talks about “Passive income ideas”, you are likely to see P2P lending as one of the ideas.
I won’t be talking too much about what P2P lending is, I have attached a link at the bottom of this post if you are keen to find out about what it is.
My purpose of this post is to let you know more about my experience with one of the P2P lending providers in Singapore and what are some of my thoughts about it before and after using (and investing).
* Disclaimer: I am not promoting or advocating for the provider mentioned in this article, neither am I promoting for one to invest in P2P lending. The rest of the disclaimer is written at the bottom of the post.
Name of the provider: Funding Societies (FS)
When did I start: Nov 2018
Why did I choose FS over other providers: FS’s interface is pretty neat and decent. Especially when you use their app. I have to say that their app is one of the cleanest and it is quite user friendly in my opinion. It was easy to start with FS because their minimum deposit was only $100 (affordable if you are thinking of investing, you should be able to afford).
* Note: I will not be talking about the functions and all about FS. They have many different types of loans. If you are keen to find out more, feel free to head to their website to learn more, I have attached a link below.
Experience with FS: I started investing with a small sum as I felt that it wasn’t something that I want to put so much into. The minimum per investment (per loan) is $20. But the thing is, if I invest $20 into a $20 stock vs $20 into a P2P loan, the P2P loan carries a significantly higher risk. Why? Because for the stock, even if the stock performs badly, maybe your share price will fall to $18? $15? $10? And you still can recover the remaining amount if you choose to cut your losses. BUT for P2P lending, it is not within your control, you can’t choose. If the borrower decides to default and run away, your $20 is GONE. While FS will try their best to recover the lost funds, but come on, realistically speaking, if the borrower declares bankrupt, what can you do. The money is completely gone, and quite often, it costs more to raise the issue up to court as compared to letting the issue die down.
As you can see above, that is the definition of defaults according to FS.
Was the returns good? Yes and no. If the world was perfect and EVERY borrower pays up, yes its definitely good. However, you just need ONE borrower to default and say good bye to your next $200 worth of investments (Assuming that your every investment is $20, returns are at 10%, 6 months => you should be receiving $1 interest). Think about it, you have to risk another 10 more funding to make up for that one loss.
All in all, I did make some returns, however, due to the number of defaults, my net returns was NEGATIVE.
Allow me to break it down for you, I made a total of 157 funding here with FS, out of 157, 7 of them defaulted. And because of this 7 borrowers, it caused my earnings from the other 150 to be gone and then some.
Conclusion
I believe that there is definitely some good in P2P however, the regulation and checks on the borrowers need to be tighter to ensure that there will be an even lower default rate.
========================================
Links
Funding societies sign up link: https://fundingsocieties.com/sign-up-investor?referral=jopv6mkq
What is P2P lending: https://www.investopedia.com/terms/p/peer-to-peer-lending.asp
* This article is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. The information, opinions and views contained herein have not been tailored to the investment objectives of any one individual, are current only as of the date hereof and may be subject to change at any time without prior notice. Medium or author of this article does not have any obligation to provide revised opinions in the event of changed circumstances. All investment strategies and investments involve risk of loss. Nothing contained in this website should be construed as investment advice. Any reference to an investment’s past or potential performance is not, and should not be construed as, a recommendation or as a guarantee of any specific outcome or profit.
