Finance

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Always on the hunt for an easy way to make passive income, I dipped my foot into the realm of peer-to-peer lending back in February of 2016.

Ironically enough, I’d started researching peer-to-peer lending back then in search of a loan to help finance the construction of our garage, which I still haven’t talked about here on PIAC, but instead ended up being a lender rather than a borrower.

So, at the onset, I put in $1000 with Lending Club and funded 40 different loans in $25 increments. I picked roughly half of them myself and used their “auto” process to pick the rest of them.

It took around three weeks for it fully “invest” all of my money — partly because I’d set the “Automated Investing” to only invest in sure thing loans.

Sure thing loans don’t offer the greatest return for the lender but you can be certain to get your money back. As a result, it’s a little tougher to get your foot in the door for those.

Things were great for the first few months, even threw a bit more money at it — stuff like Adsense income and PayPal balances from selling little things on eBay and stuff.

Grand total, I invested $1689.40.

It felt good, making far more in interest than any savings account with 40+ loans in the portfolio, there was movement nearly every day of the week.

My first month, I’d made $1.86. The next month, I made $9.35. Month three brought in $11.21 followed by another $12.24 the following month.

No, not huge money, but quite nice returns (and quickly) on such a small investment.

I was re-investing my interest gains to fund move loans along the way and, yeah, I was like, “Damn, I shoulda jumped on this train years ago!”

And then I had one loan fall into it’s grace period.

Before long, it was 30 days late.

Another loan followed. And another.

Three defaulted.

Another one was charged off.

Yep, the wheels were falling off.

All of my interest that I’d been thinking of as “easy money” was suddenly disappearing due to deadbeat borrowers. And the negative side of things seemed to be picking up steam.

One month I made around $10 in interest…but lost $68 due to loans being charged off.

Yeah, that wasn’t what I had in mind when I jumped in…I was losing money, like, fast.

Before long, I noticed that the loans that weren’t being paid back we predominantly the ones I’d selected manually…and mostly loans with higher rates.

I knew there’d be additional risk in funding a higher rate loan…but not to the degree that an entire year’s worth of experience showed me.

Now, almost two years in, I’m almost back to even.

Almost.

My $1689.40 investment is worth $1692.14.

So those early returns in the first few months that had me all excited have turned out to be $2.74 of “profit” over 21 months.

Yeah, that’s bad.

I’ve made 13-cents per month. You don’t see the peer-to-peer lending sites advertising those kinds of returns!

The reality of it is that it’s actually worse than that as I currently have two loans in my portfolio that are currently over 90 days late.

Pretty sure I’m not seeing another dime on those.

And those two fine folks still owe me back $39.57 in principal alone. So, yeah, I’m not not “really” up $2.74… I’ve actually thrown $36.83 out the window…and the rest of my money is far from a sure thing.

That’s what sucks about peer-to-peer lending.

There are so many borrowers that look good on paper to an inexperienced (and naive) guy like me but, in hindsight, I should have known there was little chance most of them would pay their loans back in full.

The “idea” of nearly doubling your money was a marketing gimmick I fell for.

But there is a bright side to all of this, see, I’m not naive to it anymore.

The past 21 months have taught me how to more wisely select my loans and while the returns aren’t as great, and tons of them pay their balances off early (hey, like I would!), so I’m not making as much as peer-to-peer lending sites want you to think you can make, soon, I won’t be losing money either.

To date, I’ve earned $254.90 in interest. Making roughly $12/month on such a small investment is a pretty solid return. My initial goal was always to re-invest the earnings and get a snowball rolling. That’s still the case.

The flip side is that I’ve also lost $255.82 in unpaid loans.

On those, I lent out $300…and only received back $44.18. That money is gone.

And that makes me angry…but I was also able to isolate what types of loans cause me to lose money…and they’re dead to me.

The New Strategy

They had me fooled for the first year or so but no more.

It’s gotta be a 36 month loan and less than $15k. The purpose of the load also has to be credit card payoff or loan consolidation. Most importantly, they have to have qualified for an interest rate under 12%.

I won’t touch loan requests for medical expenses, major purchases, home improvement, or car loans with a 10 foot pole.

And with the criteria above, I also don’t need to worry about past delinquencies or credit scores at all cause folks with those issues don’t qualify for personal loans at rates under 12% anyway.

I knew all of this going in…I just didn’t heed my own advice.

The last 45 loans I’ve funded (dating back to March of this year) all followed my “new” criteria (36 month term, under $15k, sub-12% rate, and not for something stupid).

Guess what? Every single one of them is current and making me money.

So, once the junk loans I funded originally have run their course — another year or so, I presume — my defaults will be few and far between.

You know, like I’d expected all along.

Bottom line, you can earn some nice returns on a small investment using peer-to-peer lending. Just don’t get lured into thinking you can pull in 15% returns…or you’ll get burned.

So while I’m not exactly thrilled with my ride so far, I’m not pulling my money out either.

There is money to be made.

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Well, being that it’s been two years since I last posted an update, I know I’m not taken aback by the HUGE sways in the chart over there.

I mean, a lot has happened over the past two years…and my finances certainly show that.

Let’s start at the top… My checking account balance is dreadfully low. I’m still on one of those plans where if my balance drops below $1500, I get charged a $14 maintenance fee.

With so many “free checking” options out there, I should probably inquire about switching the type of account I’m on as it’s been a monthly trend for me to drop below that threshhold — though I must admit, I’m not ususally *this* low.

That said, my spending has changed drastically since November of 2015. DRASTICALLY. I’ll share that news soon.

Regarding savings, yep, you’re seeing that correctly. My stash in savings dropped 6-figures…but it was money well spent. Remember that garage I fantasized about for years? Well, we built it. And it cost a lot.

The “Lending Club” line is new. Much like my experiments with stocks and i-bonds in the past, I dipped my toe into the peer-to-peer lending pool to see if it there was any easy money to be made.

The answer to that question is…no. But I will say, after 18 months or so in the game, I’ve figured out what not to do…so my tiny earnings will no longer disappear due to loans offered to deadbeats.

As for stocks, yes, somehow the $9 I had in my ShareBuilder account two years ago is still worth just $9. Actually, it’s $8.92. I rounded up.

And my 401k is on the up-and-up. I’m sure President Trump is who I should give the most credit to, huh? Yeah, that’s not going to happen. Ever.

Oh, the credit cards. For someone that’s dug themselves out of $30k in credit card debt, fully documented on this site, not once…but twice, I’m sure it’s hard to fathom that I currently find myself nearly $40k in credit card debt alone today.

Well, that garage we built was expensive…and we didn’t finance any of it (besides the second mortgage we took ouy years in advance) so I was using the plastic exclusively for a long time.

The good news is that the garage is 98% complete and 98% paid for. The fact that I’m only $40-thousand in the hole as a result makes me feel pretty okay. I’m in pay down mode now. You’ll see. Stick around for the ride.

You’ll notice a couple of lines for auto loans. Well, those are new too.

See, my trusty Scion xA (that I paid off in 2008) left me stranded a few hundred miles from home a few weeks back and I had to buy a new (to me) car in a hurry.

Then, this past week, the Swagger Wagon my wife drives (that we paid off in 2015) was hit by an uninsured driver. Wonderful.

Still waiting to see if it’s going to be repaired…our insurance company is taking their sweet ass time but I think the writing is on the wall — we’re going to “add” two auto loans within the span of one month.

And the mortgage balances are what they are.

Truthfully, I thought a two year gap would show more progress but the fact that I’m sending minimum payments in — wisely, I might add — is likely to blame.

Once that credit card debt is gone, Mortgage 2 will be the primary target. It’s currently my largest monthly bill coming in at $573.48…and I hate it.

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Recently, I had to purchase a car on short notice and a quick trip to CarMax solved my situation — same day.

Great experience all around.

When it came down to do the financing, the first question I was asked was “How much are you going to put down?”

They didn’t seem taken aback when I said, “Nothing” but, well, I could tell I was being judged.

I’m sure they hear something along those lines all the time…so I followed it up with, “Always better to use someone else’s money…”

Evidently skeptical of my ability to pay, they proceeded to tell me that the larger the down payment, the better the finance offer would be and how it would lower my monthly payments and, well, you know all that stuff that they use to pressure you to get a larger sum of money up front.

Yeah, not gonna work with me. Besides, I didn’t have a dime (or checkbook) on me.

When they submitted my loan inquiry (via computer), I got the vibe that they thought, yeah, we’re not getting a sale today.

No one is going to finance this deadbeat that came walking in here looking to buy a car in under 30 minutes with nothing down…

As the hourglass on the computer continued to spin from top to bottom for over 5 minutes, they asked me, “Are you sure your mortgage is only $498 per month?”

It was one of the few questions they’d asked, besides my social security number, that they’d use to check in on my ability to pay.

“Wow, it’s never taken this long…”, they exclaimed and even followed with “you should put everything out up front, they’ll find it if you don’t” as if that was the reason it was taking so long for a response to be returned.

Yeah, they were totally convinced I’d wasted their time, I could tell, even asking if I’d reconsider making a down payment under the guise, “It makes the loan more attractive to the lenders we use…”

At this point, while I too was begining to sweat it, I was still confindent in my ability to qualify for a loan. Extremely.

Following an epic 10 minute wait, where I had started to think the computer had just frozen — boom!

A loan offer was displayed.

I could tell by the salesman — and his trainee watching the entire process — that they thought something was wrong.

Not only was it from CarMax’s in-house Auto Finance department (and not some bank I’d never heard of) but it didn’t make sense to them.

The top line on the screen displayed a loan of $19000 at a rate of 0.99% for 36 months.

I’m no loan shark and I’ve never been involved in the auto sales industry, but I’m pretty certain that’s a pretty sweet offer for a used car loan.

As they were preparing to click and accept the loan, I stopped them and asked if I could push it out to 48 months. Or even the max, what was the max?

They cautioned me that extending the term may lower my monthly payments but the rate on the loan offered would jump — it would be a poor decision to turn down the *AMAZING* rate offered sitting on the screen.

I went in to my “offering financial counter-advice” mode and explained that cash flow *is* everything.

My primary goal today was to buy this car with ZERO money of my own and to secure the lowest the monthly payment possible…

Since this a simple interest loan being offered — I’d alraedy confirmed that as well as the lack of a pre-payment penalty — the term of the loan holds no weight, nor will the higher interest rate (relatively speaking — as long as it doesn’t jump 10% or something).

With a longer term, I’ll have the added flexibilty of a lower monthly payment (which means MORE cash in my pocket each month) and still have the option to pay it off, as I plan to, in 36 months, 48 months, or whatever without any penalty.

Reluctantly, they turned down the offer sitting there on the screen, thinking I’d been offered a rate I didn’t qualify for anyway, and set it to seek a loan with a 72-month (the max) term.

Less than 30 seconds later, another offer displayed on the screen from the same in-house lender.

72 months at 3.9% and a minimum monthly payment of $300.76.

Offer accepted.

Twenty minutes later, I drove out of there in a new (to me) car without spending a dime.

So, here’s the deal…

Going in, I knew that my Experian Score was 846 out of 850.

I can not stress enough how having good, err, great credit is.

It’s so rare these days, it seems, but I’ll tell you, it opens such better financial opportunities and, frankly, a boosted self confidence walking in too.

I’ll admit, I was a little worried as it took so long for an offer to come through but I knew, without a doubt, that I’d qualify for a loan.

A good loan.

Had I accepted the initial offer, 36 months at 0.99%, my monthly payment would have been over $525 per month. I don’t recall the exact amount but I sure as hell wasn’t going to pay over $500 per month for a used Ford, that’s for certain.

The offer that I did accept with the longer term and higher rate landed me a monthly payment of just over $300 per month.

Still a sizeable sum, yes, but a sum that allows me an additional $200 per month to do with what I please.

Wanna know the crazy part?

If I happen to send them that extra $200 each month, in addition to my $300 minimum payment, I’ll have the car paid off in 40 months — just four months longer than the original offer.

To me, having the ability to “cut” $200 off of my bill anytime I please is well worth an additional four months of payments on a loan…three years from now.

So, the moral of the story?

Great credit may earn you super low rates…but don’t get fishhooked by the rate!

Yes, your credit history earned you that rate…but you can do better!

Push the term out, use the savings to add to whatever it is you’ve been doing that earned you that credit score, and you’ll end up paying off the loan years early *and* have more money in your day-to-day finances to make additional wise manouevres.

This is the best piece of advice I wish I’d learned before figuring it out on my own.

Yes, yes, I know people “payment” shop when looking to buy or, worse, lease a car but it’s what you do with the savings you gain from the lower payment that makes the difference.

Ideally, you want all of your required monthly payments to be as small as possible so as to maximize your available cash at all times.

I wrote a post back in 2015 that nails it on the head when it comes to paying your debts back effectively and efficiently.

Never allow yourself to become a slave to your debts — you can set the timetable and payment schedule.

If you’re disciplined enough, you really can have your cake and eat it too!

Look at me — I have a new car, a low payment, and cash in my pocket.

Can’t get much better than that, can it?

History repeating?

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November 2015 Net Worth ChartOnly a few weeks late with this…

Pretty good month that was greatly swayed by the recovery of the markets that caused my bottom link to tank last month (and the month before).

That (out of my day-to-day control) nonsense aside, I had a good month.

Granted, it was also a month with three paychecks which also swayed the numbers, I still spent less than I paid back on all of my open credit car accounts — one of which I paid off.

I’m thinking I should resurrect my monthly spending reports to really make myself more accountable for my spending.

Really, shame is a great motivator. I truly hate having to explain my frivolous expenditures when, deep down, I know exactly how frivilous they are…

I also want to show off how much fast food I’ve been eating.

It’s crazy.

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networth201509Yeah, so last month I was pretty confident that I’d turned a corner and was well on my way to building wealth again…and then I ended up down another 8 grand…

Granted, the markets continued to tank so my 401k kind of acted as an anchor of sorts but I also spent a TON this month.

Back in August, I mentioned that my oldest son would be trying out for a travel hockey team. Well… he made the team which is so awesome as he’s “playing up” (basically playing at a level above his age group) but with that come some pretty hefty expenses…you know, to the tune of $3000.

On top of that, my middle son’s hockey season is another $500. Yeah, this isn’t like the $60 town league soccer program…

So that was the main budget buster, though much of it is hidden in this update as I paid down the balances prior to the end of the month — as much as I could, anyway.

We also purchased a new mattress from Casper.com. I’d heard enough good things about them and knew that, since our staircase is so narrow, we needed something that we could get up into the room without causing all kinds of damage to the walls and ceiling.

It came in a box that was manageable in size and enlarged once we cut it open. Pretty cool. Pretty comfy. And, thankfully, a purchase what we’ll make maybe once per decade.

Outside of that, it’s business as usual around here…

Oh, have I mentioned how nice it is not having a car payment again?

Yeah, that’s pretty sweet.

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September 2015 Net WorthWhat a month!

Now, usually, I’d be pretty upset about falling nearly $10k in the span of 31 days but not today.

I haven’t really set financial goals since, hmmmmm, probably 2008 (which has probably been a HUGE mistake) but back in April of this year, I set a goal of paying off my remaining $11k balance on an auto loan by summer’s end.

On August 7th, I did just that.

So, while my credit card balances are a little out of control and the savings balance is below the $150k I think I’ll need to fully finance the garage project, my auto loan is gone.

That opens up a lot of cash to pay down the loans and bloat the savings in a hurry.

And, on the bright side, had it not been for the market woes at the tail end of the month, I’d have actually had an increase this month.

Pretty good feeling considering that I kinda felt I’d stretched myself a little thin…

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Lawn ChairYouth sports are funny. On the sidelines, as parents, in our cheap folding chairs, we’re all pretty much equal.

Sure, there’s some judging going on based on the vehicles we drive up in but, for the most part, even a relatively new Nissan runs around $40k.

A hefty price tag for, well, a less than luxurious ride.

It’s once the Facebook connections start to take hold and the inconsequential birthday invitations start coming in that you get a glimpse that some of these folks are, well, “living the life”.

You know, tennis court in the back yard, kitchen that could easily seat 30 people, and multiple staircases…to their 3rd floor library.

In fact, lately, while it’s hardly true, it still feels like we’re the only ones who lack these things…

A classic “not” keeping up with the Jones’ type of deal.

One kid, whose parents I went to high school with, lives in a $6 million dollar home. I can’t even imagine.

Anyway, while driving around aimlessly last week with the kids killing time until swimming lessons started, I stumbled into a neighborhood of homes that, when I’m not dreaming of living in a 5000 square foot Victorian home from the 1800’s full of secret passages, was full of McMansion style houses that I picture myself in when I’m in my 40’s and raising my kids.

Newsflash… that’s just a year away. Ack!

Yeah, I could live here.So I scoped out a couple of them on local real estate sites to get a glimpse of what the interiors look like and, yep, as expected, they’re all really nice. Duh.

Price tags hover around $650k.

No, not 6 million dollar homes but, really, who needs a full blown movie theatre or bowling lanes in their house? Not me.

Again, I can’t imagine.

A $650k mortagage, excluding taxes and insurance (like my current mortgage) would run around $3200 per month.

Yeah, I can’t swing that.

But… if I were to sell my current house for $200k (maybe a stretch, maybe not) and come out with $130k (subtracting out the outstanding mortgages) and apply that as a downpayment, well, the monthly mortgage payment would then drop to under $2500.

Considering I’ve been paying that amount on a CAR PAYMENT — alongside two mortgage payments — with relative ease, well, now things are becoming a little bit clearer…

Financially, we could totally afford to move to a new home that’s double (or even triple) the size of our current one.

In fact, once we’re done paying daycare bills, gasp, even a $3200 per month mortgage payment would be totally do-able.

Am I really convincing myself that I should/could trade up from my first home (that I paid $141k for) all the way up to a $750k+ home?

Yeah, kinda.

I mean, I wouldn’t need to build that 3-car garage anymore cause, well, the new house would already have a 4-car one.

And even though we already have enough room in our house for each kid to have their own room…if we moved, they could each have their own bathroom (and staircase too)!

All kidding aside, though…

It’s the brief moments of weakness like this that I feel I do need to “keep up”.

Thankfully, reality always sets in (along with my own incredibly high-end personal “vision” of myself) pretty quickly, and I’m happy with where I am.

I know I could have a $750k house if I wanted to…

Perhaps it’s not the wisest financial move (not investing in real estate in a upward fashion) but I can’t say I’ve had a sleepless night over money for over a decade now.

It’s pretty comforting knowing that I “could” pay off my mortgage pretty much anytime I’d like.

Moreso than the comfort a $750k house could give me.

Most of the time, anyway!

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Swagger WagonAhhhh…that awkward period when you’re paying off a loan and you either go over by a few cents by paying that final payment before the final due date or come up short by a few cents cause the lender tacked on a few more finance charges right at the end…

Daily interest charges and waiting for payments to clear always gets tricky.

I think it was when I paid off the BMW, my monthly statement provided a “Payoff Amount” and as I was nearing the end, I sent them that exact amount.

Turns out, since I paid it when I received the bill and NOT when the payment was due, I’d overpaid by a few dollars.

No joke, it took over two months for them to refund me my over payment and send the title too.

My assumption is that before they give up the title, the books need to line up…and they didn’t.

Of course, this was all way before bank websites were as e-friendly as they are now.

And, as luck would have it, my auto loan and my checking account are both with Bank of America.

The site claims that I can make same day payments but anytime I do that, it’s far from “instant” and still takes a day or two to show up as having actually happened on both sides.

Usually they take my money out of checking first…and then a day later apply it as a payment to the loan.

Same day. Yeah, right…

Probably some sort of federal banking oversight loophole that allows that kind of crookery.

Anyway, the remaining balance on the loan, as of today, is $2001.03 and that falls within my red zone.

It was payday today so I’m paying it off in full — using the currently listed “pay off amount” of $2001.35 (an extra 33 cents) and “borrowing” from my savings to cover any potential shortfall before I’m paid again.

BoA_Auto_Loan

Anyone want to be that then this all clears, though I paid within the listed “payoff good through” date window, that I’ll still owe them a dime or so?

History repeating… but, ahhhhhh, it feels good to own all of my cars again…

Too bad I’m on the verge of purchasing another one

Can You Dig It?

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