P2P lending tuition fees

I’ve mentioned previously that I had some money on the crowdlending site MoolahSense. Not very significant, but still a sum of money. I had hoped to peacefully experience the platform, learn the ins and outs and most importantly, get my money back.

One thing I’ve learnt through my career is that – Life never goes as planned.

Stressed Campaign

Welp, time to write off my Moolah

Of my initial investment of $2,000, I received $733.44 of repayments. If I were to write off the balance of the loan, that would represent a 63.3% loss.

So what can we learn from my $1.3k of tuition fees?

1) Never be greedy about yield

Most people look at the 18% headline rate and go crazy.

Huat ah

18% Return! Pump all my money in!

As investors in Hyflux 6% Perps found out, people can promise to pay you high yields, but there is always a reason for the yields. There is always the risk of going to zero.

2) Check your Risk N Returns before investing

Adding on to point 1, let’s analyse the numbers of the campaign I invested in: 12 months equal installment 18% loans. This is a very common structure on the MoolahSense platform.

  • Total Capital: $2,000
  • Total interest received if no default: $200.32
  • Nominal return: About 10%

This campaign was initiated during a time when MoolahSense had no servicing fees. Now, there’s a 1% fee on repayments, which will drive return below 10%.

Now think about it, would you risk all your money for a meagre less than 10% return?

I would argue no it is insufficient, dang I could earn that percentage on a average year in the market at a much lower risk! You should be demanding 20% return for it to be worth it (maybe?)

3) Diversification is important

When I was looking at campaigns to invest in, I could have put $1k into 2 campaigns instead of $2k into a single campaign to diversify a tiny bit. If I had done that and not been lazy as I was then, I could have saved 1 grand.

Also, thankfully, I didn’t put all my money into MoolahSense so the loss represents only about 1% of my portfolio.

Conclusion

As I’ve mentioned in my earlier post, I’ll be gradually withdrawing from the platform as  my other campaigns wind down as the Risk N Returns are simply not enticing to me. Tread carefully with Crowdlending, my friends.

Happy Hunting,
KK

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2 thoughts on “P2P lending tuition fees

  1. Justin Chua says:

    Thanks. I had the same experience on Moolah. I did the experiment for one year, with 6 campaigns. There was one bad apple, a company defaulted on the interest. Overall, I did not lose money, just breaking even because of that company.
    So, risk-wise it is no difference from investing in the stock market. It convinced me that stock market is a better place for me.

    • KK says:

      Good to hear that you didnt lose money like me Justin. Agreed that we should stick to things we are familiar with and are superior.

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