Hank Coleman Discusses Peer To Peer Lending Investments On Fox Business

by Hank Coleman

I recently had the privilege of being on the Gerri Willis Show on Fox Business and discuss the value of peer to peer lending through services like Lending Club. Here is the TV segment which was filmed on September 3rd, 2013.

Hank Coleman on the Gerri Willis Show

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Transcript Of Hank Coleman Talking About Investing In Peer To Peer Lending

GERRI WILLIS: It’s a trend shaking up the financial world – it’s peer-to-peer lending. Talk about alternative investing. More investors chasing higher yields, offering loans to folks turned down by traditional banks. But is this risky investment a smart one? Joining me now, Hank Coleman. He’s a financial adviser for Coleman Financial, and the publisher of MoneyQandA.com. He has invested in over 140 of these kinds of loans so far. Hank, tell me how you got involved and why you were motivated to do it?

HANK COLEMAN: Well, just like you said, I was motivated by the financial crisis of 2008. You know, I started investing in peer-to-peer loans right at the beginning of 2009, just like you said, searching for that higher rate of return for my investments.

GERRI WILLIS: You know so many people, even now, are looking at the returns in bonds and thinking, “What else can I do?” This is one thing they’re considering out there. What percentage of your money have you been putting towards this?

HANK COLEMAN: I’ve been putting about 10% of my total investment portfolio in alternative investments like peer to peer lending.

GERRI WILLIS: Now, one of  the problems with this is there’s a lot of defaults with these loans because, I mean after all, these are people who can’t get loans from regular banks. Is that a problem for you?

HANK COLEMAN: It has been. You know, I started off in 2009 and I saw the great possibilities of a huge rate of return and I kind of got a little greedy. And so I have had quite a few defaults in the beginning, but things are looking up now, though.

GERRI WILLIS: So what they do is they rank these loans – these potential loans, do they even see what the potential of default is? And Lending Club, for example, has a 3% annual default rate, and they give you all kinds of clues about what’s happening. But here’s what I want to know: Hank, how much do you know about the person that you’re lending to? I mean, do you have any idea that, you know, it’s a first-time entrepreneur hoping to open a pretzel store? I mean, do you have details?

HANK COLEMAN: You do have a few details. I mean, it’s shielded so you can’t see exactly who, you know, personal identifying features. But I mean you know things like their occupation, real important things from their credit reports, how much income they earn; you do know quite a bit about it, and there’s a dialogue that the borrowers and the investors can have in the comments section of these peer-to-peer lending web sites where you can ask questions; you can get that feedback of what they want that loan for.

GERRI WILLIS: Well, what kind of return are you seeing and what kind of default rate have you experienced?

HANK COLEMAN: Well, like you said, I have right now about 140 loans and I keep adding to them, but I’ve seen about 20 default on me. So that’s a default rate of just a little over 10% you’re going on to 15%, but those, taken into context, those are loans from the beginning of when I started investing, and now I’ve kind of changed my investing strategy. It’s been a lot more conservative.

GERRI WILLIS: Learning curve.

HANK COLEMAN: So I see a lot of – it’s getting better. But, you know, right now, I’m earning a rate of return of right around 5%.

GERRI WILLIS:  5% return, I’ve got to tell you, if you had your money in the stock market since that time – S&P 500 is up 75%, the NASDAQ 120%. Do you regret putting your money in these loans, or do you think you made the right decision?

HANK COLEMAN: No, I still think I made the right decision, because like I said, this is such a small portion of my portfolio – it’s only 10%. I still have my retirement funds. You know, I still fully fund a Roth IRA, I still fully fund my 401K at my work. This is money on the side – above my retirement, above the money that I’m setting aside from my kids’ college education. This is just a small portion of my total portfolio. And so it’s kind of inverse, you know. When the stock market is going up, you know, maybe Lending Club, maybe it’s not the best time to invest in Lending Club or other peer-to-peer lending services. But when the market is going down, and there’s a demand for these types of loans, it’s kind of inversely related. So it’s a great time, especially when the markets are taking a cooling off period.

GERRI WILLIS: Interesting stuff.  Hank, thanks for coming on tonight, I appreciate it.

HANK COLEMAN: Thanks for having me, I appreciate it.

[End of transcript 00:04:15]

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About Hank Coleman

Hank Coleman is the founder of Money Q&A, an Iraq combat veteran, a Dr. Pepper addict, and a self-proclaimed investing junkie. He has written extensively for many nationally known financial websites and publications. Hank holds a Master’s Degree in Finance and is currently pursuing his Certified Financial Planner credentials. Email him directly at Hank[at]MoneyQandA.com.


Hank Coleman has written 497 articles on Money Q&A. Learn more about Money Q&A on Twitter @MoneyQandA and @HankColeman.


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{ 6 comments… read them below or add one }

Bryce @ Save and Conquer

I had almost $10k invested through Lending Club at one time. There were lots of defaults in 2009-2012, and I did not have any of their high risk loans. I also learned early on to keep the loans small and split among many lenders. My biggest problem was when I wanted to get my money out. It comes out in dribs and drabs over a minimum of 3 years. Mine took longer because they had renegotiated payment plans with several borrowers. That’s better than a default, but it took 4 years to get all my money out.
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Hank Coleman

It is definitely important to invest in many loans, typically at the minimum of $25 per loan. That 2009 – 2011 is when I had all of my defaults as well.

I don’t withdraw money from Lending Club. Instead, I roll the proceeds every month over into new loans. It has been a great passive income stream for me.
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Jack @ Enwealthen

Peer to peer lending is an attractive option in today’s environment to be sure.

My primary concern is the same as Bryce – the timing on getting your money out when you need it. And secondarily, how badly will the loan quality decline as P2P becomes more popular and starts attracting the scam artists trying to bilk money out of the investors.
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Hank Coleman

I don’t think that the scam artist concern is very valid. They have been making loans since 2008, and it’s already very popular. They are on track to issue $2 billion or more in loans. They screen out the scammers and are pretty hard on the borrowers. Only 1 in 10 make it through their screening process.
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GetRichWithMe

There must be better investments out there with much less risk. A 5% return isn’t great when you consider the number of defaults you’ve suffered, the debt plans you’ve suffered and the iliquidity of your investment.
Wouldnt it be better to invest in high yield bond mutul fund instead. Higher returns, lower risk, and the ability to get access to your capital within 5 working days ?
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Hank Coleman

You have a point, but don’t just look at my low rate example. Most investors are earning a far greater return than 5%. In this case, peer to peer lending’s higher rate of return justify its higher risk of default. It won’t take long for me to earn more than high yield bond mutual funds, and most investors in Lending Club will earn more.
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