Lending Loop Review: Peer To Peer Lending for Canadians
Lending loop introduces peer-to-peer lending for Canadians. This is my Lending Loop Review.
Peer-to-peer lending is basically where you can, as an individual investor, lend out money and earn interest like a bank. This creates the possibility of higher than average market returns and steady income.
How peer-to-peer lending (P2P Lending) works is buy pooling the money with other individual investors lend that money at a higher than average interest rates compared to a lot of traditional investments. This also allows you to participate without the increased risk of lending to one person or company – and without having to fund the entire loan yourself.
Note: If you are interested in Peer-to-peer lending and you live in the United States, I recommend joining Prosper, which does the same thing, but for Americans.
In fact, you can invest as little as $50 in any given loan, and we recommend you start with at least $500 in your account – because as soon as you have a deposit of $500, you get a $50 bonus – which is a 10% return on your initial capital.
Lending Loop Review: Main Benefits
Here are some of the main benefits:
- attractive fixed income
- be your own bank
- monthly fixed income
Peer-to-peer lending is discussed in this Globe and Mail article from September 2015.
Here is how LendingLoop describes what they are:
“Lending Loop is Canada's first peer-to-peer lending marketplace. Our core focus is providing businesses with accessible capital at fair interest rates through a simple online process. We do this by cutting out the costly intermediaries, such as banks, allowing Canadian businesses and lenders to prosper together. Lending Loop gives all Canadians access to simple and attractive returns by supporting the growth of local Canadian businesses.”
At any time, there are 2 or 3 different loans in the marketplace you can choose to evaluate for your portfolio. Funding my account was easy. I simply set up a bill payment from my RBC bank account and it was ready to go.
Here is the dashboard of my own Lending Loop account which I started less than a month ago:
The $89.28 includes my income ($15.07 currently earned via interest income) and the principal repaid along with the interest.
As you can see, it shows your maximum exposure on any single loan, and the current gross yield. The total pledges are loans that a being finalized. As investors pledge on loans, the spots fill up until the loan has been pledged in full. Once that happens, the loan gets finalized, and then payments start after 30 days.
You can see your upcoming payments and recent payments in a nice chart. Again, this is from my account:
(The names of the companies have been blurred out as per the LendingLoop Terms of Service to protect the borrowers.
I found the process really fun, and I love the easy access to the statistics and repayment schedule.
Why would you want to invest in loans?
Loans are the bread and butter of the banking industry, which is known for consistently profitable companies. Most people never default on a loan, but that is the one risk factor involved in peer-to-peer lending.
With LendingLoop, you are investing in Canadian businesses. Now the loan interest ranges from 11.9% to 14%. Not as high as some consumer credit cards, which can be as high as 24.99% and are often in the 19%-20% range. But it's still a number that should consistently outperform the market in most years.
I like the Lending Loop concept, as you can get a high rate of return and not worry as much about the overall market fluctuations that can be very worrying for Canadians.
The best practice is to diversify your “pledges” to the loans so your risk is mitigated.
Why Would Companies Use LendingLoop Over a Traditional Bank?
There are many reasons, but one of the most obvious is that they can get better rates from LendingLoop than they can from a traditional bank. And that creates the opportunity for the individual Canadian investor, like you or me to participate in the profits.
Another thing LendingLoop does really well is it gives you some very detailed information about the companies, including why they want the loan, and 3 years of past financials. Some investors like to ask questions of the companies before pledging to the loan – and they get quick responses from the business owners.
Here is an example of what a loan looks like in the marketplace. Note there are several tabs with detailed info to review before pledging to any loan.
One of the nice things about Lending Loop is the interface. It is clean, easy to navigate, and you can see a list of your upcoming payments broken down into interest and principle.
LenndingLoop gives you steady return on investment so it's very much like a dividend income – but paid monthly rather than quarterly.
I think it's a fantastic idea for all investors to have something like this – that offer much higher returns than bonds or CDs, and is diversified away from the stock market. Of course, I invest in stocks too, but I like the stability and predictability of peer-to-peer lending.
Lending Loop is bringing peer-to-peer lending to Canadians. Peer-to-Peer lending has been operating for nearly a decade in the US and in Europe.
How To Get Started With Lending Loop:
Open a Lending Loop account today using this link (And get a $25 credit once you fund your account with $1500 or more.) If you click this link, you will get the Lending Loop Promo Code (as it's embedded in the link.)
If you want to hear a little more about Peer-to-peer lending, it's discussed on episode 2 of the Dividend Academy podcast. Or you can download this Lending Loop PDF Guide on how to get started lending.
Lending Loop Founder Brandon Vlaar:
YouTube video from the Dx3 Canadian Tech Spotlight:
Lending Loop Review & Summary:
What's exciting about this is that this allows individual investors to lend businesses money, like a bank, and make the majority of the interest earned back – which delivers high rates of return and steady return of capital and interest.
Lending Loop Update:
I did a video breaking down Lending Loop from my perspective as a customer for over 2 years:
I also got the chance to speak with some of the members of the Lending Loop team and really understand this business model. I love it.
Lending Loop has added a couple of new features that make it easier for private investors to compound their money.
First, they added auto-deposit. Auto-deposit is a pre-authorized deposit, so you can add money to your Lending Loop account on a regular and automatic basis. (The make investments automatic is the one core principle of David Bach's book The Automatic Millionaire.) So you can every month invest a set amount into your Lending Loop account.
Secondly, to work in conjunction with that Lending Loop's new auto-deposit, they have auto-lend. Auto-lend makes sure that you are not having to log in and direct your money to an individual loan (which can leave money sitting on the sidelines and not earning interest.) They have a setup where you can pick a couple of pre-programmed loan options based on which grading you are comfortable with, or you can completely customize your own. Let's say you don't want to invest in any D or E grade loans, no problem you can auto-lend ONLY to whichever loan grades you feel comfortable with.
And a note on loan grading. This is industry grading, so there is no conflict of interest with Lending Loop arbitrarily deciding on the loan gradings. The other thing is that corporate loan gradings tend to sound “worse” than the number system we use for consumer loans. That being said, I'm fantastically happy using this service and have been getting incredible results.
I would encourage you to get signed up and fund your account so you can get comfortable with the system. Any questions, please reach out. I'd be happy to help.
Sidenote: If you are Canadian (or in the UK) and invested in auto-investing, I've been very happy with WealthSimple. Full review coming soon.