Safe yields of up to 20% lured Wall Street’s largest banks and hedge funds into the space famous for “democratizing” personal finance…
The sector is known as peer-to-peer (P2P) lending. P2P lending leverages technology to pool resources and make loans… all without the need for a conventional bank.
A person can become a P2P lender with as little as $25. The P2P services would then bundle up thousands of these “fractional” funds into larger loans to individual borrowers.
But Quartz.com reports big institutions have injected over $3 billion into P2P lending in just the last three years. Today, 65% of all P2P loans are “whole” loans—made from one lender to one borrower. The vast majority of these loans originate from Wall Street.
The big banks’ moves into P2P are just beginning. P2P lending is projected to become a $1 trillion industry by 2025. Wall Street wants P2P’s safe, fat yields. But the more money that becomes available to lend, the lower the yields for fractional lenders like you and me.
Bottom line: If you’ve ever thought about becoming a P2P lender, you’ve still got an opportunity to earn safe yields of 6-8%. But you’ve got to act now. Wall Street is moving in billions. This will drive yields down in a hurry.
To learn more about your opportunity for safe, strong yields in P2P lending, read our next item…
|
Peer-to-Peer (P2P) Lending: A Primer
From Grant Wasylik and Tom Dyson at The Palm Beach Letter: Peer-to-peer lending is simply people with money (investors) lending directly to people who need money (borrowers).
They both cut out the “middleman”—such as a bank—to do business directly with each other.
With the rapid growth of the Internet and social networking, this practice is thriving online. It’s increasingly filling the gap left by the banks when they pulled back their consumer lending…
Peer-to-peer (P2P) lending works like this:
|
1. |
Borrower applies for a loan on a major P2P lending platform. |
|
2. |
The platform verifies each borrower. |
|
3. |
Approved loans are added to the platform and given loan grades (higher-grade loans offer lower yields). |
|
4. |
Investors choose the loans they want to invest in. |
Borrowers can borrow money from people they’ve never met before. And investors can lend money to borrowers based on their credit information—without having to know them personally.
And all without any bank involvement.
In the U.S., there are two established P2P companies: Prosper and Lending Club.
Prosper started in February 2006. It’s America’s first P2P lending marketplace. With over $2 billion in funded loans, Prosper is the world’s No. 2 player in the market.
Lending Club began operations in May 2007 as a Facebook application. It’s now the world’s largest P2P lending platform with more than $7.6 billion in funded loans.
For investors, there’s no fee for opening an account. Lending Club charges a 1% service fee. The company makes its real money on origination. It charges 1-5% in origination fees to borrowers. For lenders, the fees are much less.
P2Ps also have higher yields than traditional savings accounts…
These yields are 12 to 100 times those of CDs and savings accounts
National average rates paid by banks on deposits of less than $100,000 range from 0.04% (for an interest checking account) to 0.79% (for a five-year CD). Savings accounts (0.06%) and money market accounts (0.08%) fall in the middle.
P2P lending yields are 100-130 times the average savings account yield. And 12-17 times the yield of a three-year CD…
The three “one-click” investment options we have for you earn 7.85%, 6.66%, and 5.83%, respectively. We highlight each of them in the March Palm Beach Letter issue.
Time is critical: Do it now
The current size of the P2P lending space is $10-15 billion. But venture capitalist Charles Moldow issued a report concluding that the total market could hit $1 trillion by 2025.
If Moldow is right, this means P2P lending would have to increase at least 7,000% over the next decade. To put this in perspective, the S&P 500 would have to skyrocket from its current 2,117 levels to over 140,000 if it saw this same level of growth!
Lending Club alone plans to facilitate around $7.6 billion loans in 2015 (the same amount it did in the previous eight years combined).
More and more investors are entering the space. And they’re not just individuals… hedge funds, banks, and other large institutions are profiting from P2P lending platforms. They’re all competing for the same pool of (albeit, growing) loans.
What does this mean for you and me?
Unfortunately, it means yields have come down.
According to PBL friend and P2P lending expert, David Halabu (founder and CEO of Yield Crowd), yields have already dropped 2-3% over the last few years.
More investors will continue entering this space, drawn by the attractive, safe returns. But until U.S. government bonds, banks, and brokerage money market funds start paying significant yields—or P2P’s yields decline significantly—it will remain an enticing, alternative option.
Bottom line: This opportunity for safe, diversified 6-8% income won’t last forever. Too much Wall Street money is flooding in. So take advantage of this platform now—and start collecting monthly payments from the loans you provide.
You’ll earn more than 12 times what you’d get from a three-year CD, and more than 100 times what your savings account will pay you. And you won’t have to buy a stock or a bond…