Peer to Peer Lending: Loving Your Neighbor With Your IRA

After World War II, the United States was in a place of tumult. Despite a courageous victory over the Axis powers overseas, the nation was still suffering from all sorts of problems at home. One of the largest of these dilemmas was the presence of poliomyelitis, commonly known as polio. In the early 1950s, the United States continued to experience outbreaks of polio that, per year, killed thousands and left tens of thousands of people crippled for life.

As a guy in his thirties, it is hard for me to imagine a viral infection having such an impact upon society. I am used to drunk driving fatalities and soldiers dying in the Middle East; these don’t faze me. But it is difficult to fathom that, while my grandmother was still an adult, tens of thousands of people nationwide came down with an infection that brought them to the brink of death and left many unable to walk from atrophied leg muscles. Even the 32nd President of the United States, FDR, was a victim of this ugly situation. Polio paralyzed him from the waist down for his entire professional career.

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Dr. Salk Will See You Now

Salk_headlinesThe situation would have continued for years without the work of a man few know of today, a scientist named Jonas Salk. In 1955 Dr. Salk invented the polio vaccine, an instant prevention of polio with the simple push of a needle. The press conference was broadcast live across radios throughout the country and Europe. In his book on polio titled The Cutter Incident, Paul Offit reports how, “Americans tearfully and joyfully embraced the results. By the time Thomas Francis stepped down from the [press conference] podium, church bells were ringing across the country, factories were observing moments of silence, synagogues and churches were holding prayer meetings, and parents and teachers were weeping. One shopkeeper painted a sign on his window: Thank you, Dr. Salk.”

The crazy thing is, Salk gave his invention away for free. In our modern age of pharmaceutical profiteering, such a gift is hard to fathom. Yet Salk valued his public service. He saw the struggle the nation was experiencing, saw thousands of good people dying or becoming crippled for life, and realized that the situation was too dire to do anything else. Cash flow must give way to consideration.

Our National Epidemic of Debt

In our country today, we are experiencing a similar oppression. Millions of Americans are living with ugly debt from credit cards and medical expenses. Around our country, children are going without adequate healthcare and school fees because of the financial hole their parents are stuck in. College, for many of these families, is simply out of the question, because the financial mountain that must first be crossed is simply too high. Across every race and state line, there are thousands upon thousands of families who are suffering from debt and looking for a way out.

Most people think there is little they can do to help. But did you know that there are investment accounts you can open that issue loans to help people get out of debt? I am referring to peer to peer lending. Companies like Lending Club and Prosper are wonderful new platforms that connect people who need loans to people with money to lend, and the vast majority of these loans are for people trying to get out of debt.

cut credit cardsA peer to peer loan can mean a dramatic difference for someone struggling under credit card bills. This is because, when a person has five or six different bills coming to their house each month, there is a lot to keep track of. Secondly, the interest rates on these cards are often terribly high. Finally, these interest rates never come down, they remain high no matter how much debt is paid off.

A peer to peer loan, in contrast, is refreshingly healthier:

  • People consolidate their bills into a single easier payment.
  • Interest rates are much lower. Peer to peer lending sidesteps the banking system, so there are fewer middlemen who need to get paid.
  • A peer to peer loan is amortized, meaning interest rates go down with each payment.

Lucrative Socially-Responsible Returns

With the launch of these peer to peer lending platforms, investors like us have the option to help issue these healthier loans to families that need them. Incredibly, the lack of middlemen also means higher returns for lenders: my diversified accounts at Lending Club and Prosper are all consistently earning north of 12% each year. So, not only do borrowers get better interest rates, but investors do too. Everybody wins. And with the option to open a peer to peer lending IRA, you can make these earnings tax-free.

In 1954, Jonas Salk saw a nation in turmoil and realized he could something about it. I hope that a similar realization begins to spread across the country today. We have such an opportunity with peer to peer lending to do something good for people who need it. The only question is, will this asset class catch on and ring the bells of relief nationwide?

For more information visit LendingMemo.com. I have a well-written free eBook guide that explains peer to peer lending so anybody get understand it and get started themselves.

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Last Edited: 10th February 2014

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  1. says

    This is great! Have you ever heard of Kiva? It might do even more of what you’re trying to accomplish because all the borrowers are entrepreneurs with tiny enterprises in the developing world.

  2. says

    Nice write-up over there too! Kiva seems like such an innovative way to help one person who really needs it; who then turns around and helps out her whole community. What a great group that you’re investing with :)

  3. karen patterson says

    Problem I see with all this. You talk about not wanting to lend to anyone who appears irresponsible? Who are you to judge. You don’t have to lend me money BUT don’t make a judgement on my character! I’m a divorced grandma. Poor credit due to getting behind on bills. I have a good steady job with good income. No one will lend to me. The people that need it most don’t get it. I don’t even think you should be writing an article and speaking to the situation. And don’t tell me to go to my church and ask for money. I know better.

    And you are not supposed to charge interest as a christian either.

    • says

      I’m not sure what brought your comment on Karen, I didn’t see anything in his post judging you, your character or your decisions. I think Simon makes some good points about how peer to peer lending can be a positive force for people who are trying to get out of debt by giving them another option that consolidates their debt and provides a lower interest loan that is amortized – meaning they end up paying less. That’s good for everyone! I wish you the best in your situation, and hope you can find the help that you need, from your church or from family or friends. God bless!

      By the way, I don’t think all Christians would agree about not charging interest as a Christian either. Here’s a post we wrote about that topic a few weeks ago.

      Should A Christian Lend Money And Earn Interest?

  4. karen patterson says

    You made a statement that , you didn’t want to lend to anyone that seemed irresponsible. What are you basing your judgement of irresponsibility on? A credit score? A poor credit score does not make someone irresponsible. A major illness or a job loss can tank your credit. That does not mean you are irresponsible or a poor money manager. Having poor credit should not eliminate someone from loan consideration and it does. Everywhere. As far as lending your money out and charging interest. The bible says not to lend your money to usuary. Several versus. Exodus 22:25. Debut 33:19. Ezekiel 18:8. What it boils down to is those with good credit have many options and therefore can maintain good credit. If you are on the opposite end of that spectrum? No help exists. My point was you use a credit score to judge a person worthy enough. That is the world’s way. Not Gods. Good luck to you in your pursuit of wealth.

    • says

      With Lending Club and Prosper peer to peer lending platforms I believe there are certain minimum credit score guidelines for people to be able to use the platform, so many people, like you mention, may not be able to get a loan through them. To me it makes sense on an investment platform for them to be doing things to ensure some minimum level of entry into their program, and a credit score, while not indicative of the person’s character or good intentions, can certainly give some indication as to whether a person is currently in a situation where they’ll be able to repay a debt. For the borrowers many are getting a loan to consolidate their credit and get one payment that has a lower interest rate – so for them it’s a win also – it’s improving their situation.

      To me this isn’t usury (the practice of making unethical or immoral monetary loans) because we’re helping them to improve their situation, and not harming them. I think it really comes down to whether a rate of interest is reasonable, whether there is any risk to the lender and what recourse and protections the borrower has – which in the U.S. these days is considerable. The Bible also talks about how lending can be a blessing:

      Well then, you should have put my money on deposit with the bankers, so that when I returned I would have received it back with interest. Matthew 25:27
      Rather be openhanded and freely lend him whatever he needs. Deuteronomy 15:8
      They are always generous and lend freely; their children will be blessed. Psalm 37:26
      It is well with the man who is gracious and lends; he will maintain his cause in judgment. Psalm 112:5

      I realize that not everyone can get help through peer to peer lending, and my wife and I also give money through our local church to help those in need and going through hard situations like you mention – separate from investing in peer to peer platforms. I don’t think I would want to lend to someone who is not in a position to repay anyway, and in those situations I think it wouldn’t be a good thing to lend.

  5. karen patterson says

    Typos from using mobile keyboard. Entertain new ideas. Maybe you can actually change some trends and get the financial industry to help those that really need it. Maybe with some innovative new programs that don’t charge horrendous interest.

  6. says

    Great Post. I agree that by lending to worthy people (not to people that can’t afford the loan), you can help your neighbor.

    I offer a service to help people get into Peer-to-Peer Lending without having to know anything about credit or risk. Check out my site, Peer Lending Advisors

  7. matt feldman says

    the other thing is that P2P loans are not available in MANY states. I have been following this for a while and I live in PA and it is not available

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