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Dave Says: Peer-to-Peer Lending

by | Jul. 12, 2011

Finances

Dear Dave,

What do you think about peer-to-peer lending? I’m thinking about getting in on investing in individual loans as an investment strategy.

Brian

Dear Brian,

Sorry, but as an investment strategy I think this kind of thing is pretty stupid. Most of these kinds of loans are not collateralized, which means they’re not checked out. I mean, would you loan someone money without really getting into their business and knowing something about them first?

Right now, there’s a social justice aspect to this kind of stuff. But I prefer charitable giving to lending. I mean, if you’re going to help someone, then just help them. I know, it’s almost a fad, in-vogue kind of thing right now, and everybody’s yakking about it. From a human standpoint, it’s never a bad thing to help people who are hurting. But as an investment, it makes very little sense, and you have to examine whether or not you’re really helping someone by doing this.

Don’t get me wrong, the motivation behind that kind of thing might be noble. I can appreciate that aspect of the process. But since I believe debt is a curse—not a positive thing—it would be hypocritical of me to recommend peer-to-peer lending.

—Dave

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