I'm robbing the bank, you should too: earning 13.59% through peer-to-peer lending

These days, it's easy to hate the banks. The government has managed them with bailouts and now special taxes, policies that you and I may agree or disagree with but likely have no impact upon. But there is a micro, market-based way to fight the problem: steal their business.

Traditional banks charge exorbitant rates for personal loans, as high as 29%. In the peer-to-peer marketplace, I can undercut the banks by funding loans at far more reasonable rates and still make a nice profit. My current expected returns? 13.59%. After kicking off my $1,000 p2p lending portfolio on Lending Club in early December, I've slowly built up my portfolio over the past few months, periodically adding $500 every couple of weeks until this week when I felt comfortable enough with the platform to drop in the final $2k. My portfolio at a glance:

Through these first few months, there are a few things I've learned....

Click to read more ...

Investing in People, or the personal IPO

This guy has done what I've been hoping to see for a while: he's invested in a person, no strings attached, just based on a belief that she will do amazing things and wanting to share in the success:

Imagine you are in your early twenties, out of college several years and your best friend, who recently came into an inheritance of $300K cash told you they could think of no better way to invest the money than to invest it in you.  Not the company you started, not as a loan, but invest it in YOU, as if you were a startup.  In return your friend said all they wanted was 3% of your gross income for the rest of your life.  Do you think you would take it?

Now what if your friend said that they didn’t care what you did with the money or how much you made each year.  If you wanted to sit on a beach in Nicaragua learning to surf, go work in the Peace Corps, stay at home and do your art projects, whatever you want it would be fine, just as long as you made sure to always pay the 3% of whatever you make (as little as that may be).

And finally, what if your friend said you could buy out of your obligation at any point for $6 million in cash.  Then would you take the deal?

I've been intrigued by this concept ever since I learned about my former classmate, Randy Newsom, and his selling of shares of his future income as a professional baseball player. Randy is now in law school, the baseball dream over, and I don't know if the shares that he sold (4% of his future value) are now valid that he has chosen an alternative career, but what a smart way to raise a quick $50,000 as a minor league prospect.

[Alas, my attempt to buy the domain i.po failed. Poland is .pl not .po unfortunately]

P2P student loan platform People Capital secures financing

In an show of vitality rare in this economic climate, People Capital, the innovative marketplace for student loans, secured second round financing from the private equity firm, the Radcliff Group Inc today. The company matches borrowers to lenders exclusively in the market for student loans, helping philanthopic groups, individuals, and institutional investors better evaluate prospective borrowers who may not have any credit history. Because students usually have low FICO scores due to their minimal borrowing history, they are often seen as high risk by lenders and in a tight credit market, they may find it difficult to get a loan.

People Capital aims to change that. With a new risk methology created at Wharton, the company seeks to give a better picture of creditworthiness of young borrowers. Here is their approach: "We apply cutting-edge strategies from the credit card industry. Our patent pending Human Capital Score underwrites students without credit history, FICO scores or co-signers by projecting individual income levels and ability to pay indebtedness. We incorporate GPAs, standardized test scores, college and major to provide a true and unbiased, data-driven measure of the economic value of an education."

With Fynanz shut down, People Capital is the exclusive p2p lending platform focusing on student loans (and most student borrowers probably wouldn't qualify to borrow on Prosper or Lending Club anyhow). It's an interesting proposition, betting on the ability of education to enable young individuals to reach their potential value.