My Opinions on P2P Lending
There’s quite a bit of chatter in the PF blogosphere about P2P lending, so I thought I’d pull out my soapbox and give y’all my uninformed opinions on the whole subject. I’ll do my usual disclaimer here: I am not a financial expert, do not aspire to a high level of sophistication when it comes to personal finance, and am very biased against debt.
First up, what P2P lending is. Silicon Valley Blogger wrote a good informative introductory piece about P2P last month, and even submitted it to the Carnival of Debt Reduction. I feel bad about not being able to include it since my narrow and strict view of the phrase “Debt Reduction” didn’t let me see a connection. The short and shallow version: P2P stands for “person to person” or “peer to peer” and it is simply direct loans between individuals.
Opinion time now! I don’t think P2P lending is a good idea at all, not only for philosophical reasons but also for practical reasons. I’ll break down the practical reasons first, before I get the “fire in the belly” anti-debt philosophical reasons going. LOL
Practically speaking, I don’t see why P2P lending is even necessary. Why would you rather borrow or lend money to a total stranger? These are borrowers who can’t seem to get loans anywhere else, and in today’s American “Debt Marketing Blitz” I have trouble with that.
Each and every one of these borrowers have friends, family, and the majority have a local bank or credit union. Has anyone stopped to ask why they can’t get a loan from those sources? If thier friends and family - who know them personally - don’t feel comfortable lending them money, that says something. If their local bank or credit union, who has firsthand knowledge of their money habits and a business interest (pun intended) to lend them money won’t make a loan, that is telling. With the Fed’s interest rate dropping like a dense lead ball lately, the “better interest rate” argument isn’t holding up as well as it used to. I understand that bad things happen to good people, but my gut feeling is the majority of these borrowers on these P2P sites probably shouldn’t be borrowing money. Recent headlines indicate that the major P2P sites have needed to hire collection agencies, which reinforces my opinion.
Finally, the borrowers on the P2P lending sites don’t seem to want to get out of debt. I say this because the simple practical truth is “You can’t borrow your way out of debt.” Yes, that is a Dave Ramsey quote, for those who are keeping track. It’s why debt consolidation seldom works … you are trading many small debts for one large (and usually longer) debt. The only way to get out of debt is to pay it off completely.
Now I’ll pull the soapbox out to center stage for why I don’t think this is a good idea on principle. There’s the general problem I have with encouraging people to go into debt. Anyone who has read this blog for even a week knows I actively try to inspire people to get OUT of debt! I’ve stepped back, examined the debt system in place here in America, and decided it is too close to indentured servitude or the old sharecropping system or the mining town store business model.
Shakespeare said it best, “Neither a borrower nor a lender be.” (Hamlet, spoken by Polonious to his son Laertes, if anyone is curious.) The more Biblically-inclined folks will quote the book of Proverbs, which states, “The rich rule over the poor, and the borrower is slave to the lender.” (Proverbs 22:7)
So on the philosophical level, the lenders on the P2P lending sites are looking for borrowers to become their wage slaves, much the same way I had my son working as a wage slave the other week when he wanted to borrow against his chore money. While I might be inclined to do that as a life lesson for my child, I am not comfortable at all with the concept of doing that to total strangers! So, y’all will never see me on those P2P lending sites as a lender.
An old Army drinking buddy of mine used to wear a T-shirt to the bars that said: “Lead me not into temptation - I can find it just fine myself!” That pretty much sums up the whole P2P lending situation for me. Those borrowers who crave to be debt slaves will find someone who is willing to “own” debt slaves (or indentured servants if you’re not comfortable with the word “slave”). There will always be someone who is willing to “sell their soul” for things, just as there are always people willing to write that contract.
Not me. I am no longer willing to go back into the chains of debt myself. I am not going to encourage anyone else to go into those chains of debt. And I would not be able to sleep at night if I were the ones slapping those chains of debt onto another person as a lender, since I have worn them myself for too long. So, I do not endorse or even like these new P2P lending sites.
