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Questions on Peer to Peer Lending in Canada

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Apr 21, 2004
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Questions on Peer to Peer Lending in Canada

I've read a few months back that communitylend.com will begin it's dry run sometime in the fall. Just today, I read on the communitylend website that another p2p lending is targeting Canada in the near future -- Peermint.com

I've checked out Prosper.com (US company) a few times and have the following questions:
  1. Will these personal loans be reported to the credit bureau?
  2. For borrowers with AA and AAA ratings, would their loans be insured against default? For a certain European p2p lending company, 99.5% of low credit risk loans was insured against default.
  3. Is there a cap to the amount you can borrow? Will TDSR and GDR factor into play for this kind of financing?
  4. Will the interest income be taxable?
  5. How are payments to creditors made?
Thanks and feel free to add any comments or questions relating to this innovative source of financing.
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Jun 19, 2006
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alanbrenton wrote:
Sep 6th, 2007 12:30 am
[*]Will these personal loans be reported to the credit bureau?
Don't see why they wouldn't be. Everyone in the credit granting 'community' benefits by having credit raters involved, and trustworthy borrowers benefit as well.

[*]For borrowers with AA and AAA ratings, would their loans be insured against default? For a certain European p2p lending company, 99.5% of low credit risk loans was insured against default.
These sites typically let you diversify your risk, but unless you lend to an entity that has access to a printing press to print the currency of choice, there is no guarantee of repayment.


[*]Is there a cap to the amount you can borrow? Will TDSR and GDR factor into play for this kind of financing?
As with Prosper, lenders determine the criteria of loans they will invest in. I suggest you familiarize yourself with the Prosper model; to wit: individuals advertise their borrowing needs and stats, and the middleman (Prosper) facilitates the syndication of funding for the loan.

[*]Will the interest income be taxable?
Absolutely. And if you borrow money from one of these sites to invest in eligible investments, you can use it as a tax deduction.
[*]How are payments to creditors made?
Check Prosper to see how they handle it; I believe they use ACH, which is basically a form of online bill payment.
Thanks and feel free to add any comments or questions relating to this innovative source of financing.
Theres nothing innovative about it, other than, its done online, and the average joe at home, with some savings, has a clearinghouse to invest in loans.

In theory, savers might be able to get a higher return through systems like these because there are fewer intermediaries.

How it compares, in the long run, to investing in bank stock, or quality CDO bond tranches remains to be seen. Its a novel concept....but when I visited Prosper, it seemed to be one of last resort -- lots of people looking for loans under terms that no (sane) bank would provide.
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Jul 13, 2007
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Hey, currently there are no companies in Canada providing the service, but a couple on the way, though no known launch dates at the moment.

Checkout http://www.lendingstats.com/ and http://www.ericscc.com/ for a whole lot of Prosper lending statistics. This will allow you to see real returns across different credit ratings. One interesting thing to note is that Prosper actually removed a certain credit rating rank of borrowers because they were consistently generating negative returns.

One complaint I have about Prosper (not that I have ever actually used the service), is their rigidness in loan types. Everything is always a 3 year loan, and the borrower can increase their payments as much as they like at any time. So, if all of a sudden they were able to get a better rank from a bank, they could just pay off their Prosper loan with no penalties. I'm sure there's lots of people out there that would like a longer-term loan, or would be willing to take on a "closed loan", but the options are unavailable.

The 3 year loan seems perfectly aimed at down and out people who are looking for a short term loan to cover existing debts, rather than people that are, say, trying to finance a car or a downpayment on a home. Then again, secured loans aren't available either, though they would be nice.

Keep in mind that Prosper will sell defaulted loans to a collection agency, so there is as much incentive to pay as any other unsecured loan. Prosper also does pay out the pittance that it receives to the lender (minus some administrative fee I'm sure).
Newbie
Nov 8, 2007
1 posts
Canada
Also have a few questions regarding this peer lending stuff in canada.

How safe do you think it would be, i mean is there a chance these loans can get insured somehow. What companies out there would risk it.

What are the legalities of putting up items for collateral (car, expensive items like jewelry)

Signing up at prosper get your credit report in seconds for free, would their be fees involved here in canada.

I would appreciate anyone with any knowledge about this to answer.
Member
Jul 13, 2007
334 posts
Toronto
Well, it is impossible to say how the companies that are trying to start up are going to structure their products/services. I'd imagine that the loans would all be unsecured (ie: no collateral), and non-insured. If it were insured, the rates you get would likely be no better than a GIC. The premium you get is from the risk you take in not having the loan paid back.

That being said, if the borrower doesn't pay back their loan, the companies usually auction it off to debt collectors and pay you what they get (probably not a lot). So they have as much incentive to pay back your loan as they would any other unsecured loan they may have, be it a bank or another p2p lender.

I'd imagine that there would be some verification of credit rating. I'd assume they'll get some bulk contract from the credit report issuers, and also they probably won't provide exact scores, just ranges, so you won't be getting a credit score for free. I'd assume that it would be "free" and paid for by fees that the providers collect, and what fees they'll collect is still very much in the air.
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Jul 4, 2004
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With an unsecured loan via p2p there is nothing more horrible than receiving an email telling you that you lost your dough and what YOU can do to try and recover as much of it as you can. Nice.
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Jul 13, 2007
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Frankie3s wrote:
Nov 19th, 2007 8:24 pm
With an unsecured loan via p2p there is nothing more horrible than receiving an email telling you that you lost your dough and what YOU can do to try and recover as much of it as you can. Nice.
Heh, that's what banks have been doing for a while now, and they seem to be doing okay :)

As far as I know, other than a personal interview, p2p loans are based on pretty much the same amount of background information as a bank loan is. You still have a credit score, a debt-to-income ratio and verified home ownership. Plus you have community feedback, which Ebay seems to have done pretty well with.

But like I said, if the loan defaults, it will get sold off to a debt-collector after a while, so you'll get some dough back and there is just as much an incentive to pay the loan back as there is for any other unsecured loan.

But certainly, this type of "investment" is only for people with certain risk tolerances.
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Feb 1, 2006
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Anyone have any updates to this topic? Looks like peermint and communitylend are both still under construction.

Any others worth looking at for Canadians?
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Feb 1, 2006
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Funny, the day after I bump this, there is an article in the Toronto Star on P2P lending. Not showing on their website, for some reason, but they mention this site as the first one in Canada actually operating;

http://www.ioucentral.ca/

I had a look through the site, seems quite decent. Your deposits with them are pass-through CDIC insured and pay 3.25% currently (P-2.5). Risk can be lowered by making many small loans (ie. 100 different $50 loans).

I'm assuming that this would qualify for the interest deduction for taxes if you wanted to leverage and work the arbitrage angle. Anyone (Pitz?) have any thoughts on that?
[OP]
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Apr 21, 2004
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Bullseye wrote:
Feb 13th, 2008 8:26 am
Funny, the day after I bump this, there is an article in the Toronto Star on P2P lending. Not showing on their website, for some reason, but they mention this site as the first one in Canada actually operating;

http://www.ioucentral.ca/

I had a look through the site, seems quite decent. Your deposits with them are pass-through CDIC insured and pay 3.25% currently (P-2.5). Risk can be lowered by making many small loans (ie. 100 different $50 loans).

I'm assuming that this would qualify for the interest deduction for taxes if you wanted to leverage and work the arbitrage angle. Anyone (Pitz?) have any thoughts on that?
Thanks for the update.
Member
Jun 30, 2007
260 posts
Toronto
Looking over ioucentral, it seems like creating an account with them and making a borrowing requests would be a way of getting a "free" credit report :D

Has anybody tried creating a report and borrowing or (hopefully) lending money there yet?
Member
Jul 13, 2007
334 posts
Toronto
Wowie, this other company sure came out of nowhere!

It'll be nice to see some competition, hopefully things really heat up. I will say that the interest rates do look a bit low (from an investor's point of view) compared to what I've seen on Prosper. And the investor's rate of return is lower than the posted rate due to their fees being taken off of the interest payments made by the user.

I'll post a bit more once I really take a look, but it looks like I've already seen one user post a loan and bid on others.

I'll probably start off with a little bit of funds to test out the interface. The time couldn't have been better for me, just finished a bunch of midterms, so now I'll have plenty of free time.
Member
Jul 13, 2007
334 posts
Toronto
Well, I've started the sign-up process for an account at ioucentral.ca. I think I'm going to be a very small-time lender. Just gotta wait for them to make the test deposits and withdrawals from my bank account and then verify my mailing address.

Take a look @ the site for more details. I'll continue to follow and update this thread as well.
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