I'm interested in the idea of taking out low interest unsecured loans and then loaning the capitol out on p2p lending systems.
Low loan rates are 2.7%-4%. Busness P2p sites get a return of ~7% on passive lending, if you select loans personally you can get 10%.
I can see it could be possible to borrow £50k and earn 3-4% on that sum. The low variability of p2p returns makes them particularly attractive for this kind of strategy (I would not risk buying stocks with borrowed money).
Is anyone actively doing this?
The risk seems fairly low in the short term (1-5 years), but I don't know about risk versus 1 in 10 year events or 1 in 20 year events (e.g. how likely is it a ressesion wipes out your portfolio? )
Is one actually allowed to invest with borrowed money?
What do you think about it?
On loaning and lending: a good path?
Re: On loaning and lending: a good path?
I do some of this, but I would not bet the farm on it. Consider the worst case scenario on both ends.
If you have a securities account at a low margin broker (1-2%) like IB, the best strategy is to borrow against the equities at the low margin and use proceeds to lend. But you never want to be in a position where you could get called, so the securities portfolio has to be extremely stable.
In the US this is advantageous, because if you borrow money to invest, you can write off the interest paid against the income received for tax purposes by filing a Form 4952.
If you have a securities account at a low margin broker (1-2%) like IB, the best strategy is to borrow against the equities at the low margin and use proceeds to lend. But you never want to be in a position where you could get called, so the securities portfolio has to be extremely stable.
In the US this is advantageous, because if you borrow money to invest, you can write off the interest paid against the income received for tax purposes by filing a Form 4952.
Re: On loaning and lending: a good path?
Sounds interesting. I've been intrigued by pawn lenders. I met one who did it under the table. I used to buy items from her. She stuck to jewelry as collateral. The business was a people business - she knew people like me who had cash and she knew a bunch of people who came to her for loans.
Years later I had dabbled in this when a friend secured a loan with a piece of industrial equipment. It sat in my shop for a month while he dug himself out of a financial mess. I was looking forward to keeping it but he came back with money early. I later discovered he had been using pawn shops but realized I could offer him gentler terms.
I know this isn't what you're asking but I thought I'd toss this out. With eBay, you don't exactly need a shop to sell off collateral. You also have a quick guide to determine the market value of items. Just a thought.
Lately I've been dealing with indebted elder caregivers always asking for a loan or handout. It is quite maddening. I realized hey don't have access to reasonable credit and use lenders of last resort. I started advancing paychecks and I opened Pandora's box. There is definitely a risk adjusted return. These folks are always needing cash and cannot think ahead.
If you want only 3-4% why not buy some big pharma, chemical or electric power producers?
Edit - oops ima idiot (no secret now
). You want to borrow money and lend it out. Got it. Dividend stocks won't cut it. Margin cuts both ways. If you really have no downside risk I'd say go for it. Unfortunately I think Dragline said it, things can get unpleasant.
Years later I had dabbled in this when a friend secured a loan with a piece of industrial equipment. It sat in my shop for a month while he dug himself out of a financial mess. I was looking forward to keeping it but he came back with money early. I later discovered he had been using pawn shops but realized I could offer him gentler terms.
I know this isn't what you're asking but I thought I'd toss this out. With eBay, you don't exactly need a shop to sell off collateral. You also have a quick guide to determine the market value of items. Just a thought.
Lately I've been dealing with indebted elder caregivers always asking for a loan or handout. It is quite maddening. I realized hey don't have access to reasonable credit and use lenders of last resort. I started advancing paychecks and I opened Pandora's box. There is definitely a risk adjusted return. These folks are always needing cash and cannot think ahead.
If you want only 3-4% why not buy some big pharma, chemical or electric power producers?
Edit - oops ima idiot (no secret now
). You want to borrow money and lend it out. Got it. Dividend stocks won't cut it. Margin cuts both ways. If you really have no downside risk I'd say go for it. Unfortunately I think Dragline said it, things can get unpleasant.