Author Topic: Invest in my own Loan?  (Read 7910 times)

coloan

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Invest in my own Loan?
« on: April 08, 2015, 02:19:08 PM »
I'm sure this question has already been posted, but I couldn't find it, so here it is, maybe again...

On LC, can I buy my own loan?  That is, if I take a $10K loan, can I turn around and invest in it completely? My thought is to get a LC loan to pay off my student loans, which are at higher rates.  Then, as an Investor, I would buy my own loan.  That way, I'm paying myself for my loan.  Even if I don't make an annual profit, at least I'm getting something in return and so its still better than paying it all to Sallie.  Just FYI, before anyone brings up taxes, my income is high enough that my student loan deductions have been completely phased out...so no issue in losing a tax deduction here.

Is this possible?  Am I missing something in this scenario?

Thanks!

bobeubanks

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Re: Invest in my own Loan?
« Reply #1 on: April 08, 2015, 02:44:25 PM »
If you have the money to buy your loan, why not just pay off the student loan?

Fred93

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Re: Invest in my own Loan?
« Reply #2 on: April 08, 2015, 03:19:35 PM »

On LC, can I buy my own loan? ...  Even if I don't make an annual profit, at least I'm getting something in return and so its still better than paying it all to Sallie.

Sounds like a losing proposition to me.  You're making loan payments.  LC is skimming fees off the top.  You're getting (smaller) loan payments.  You're just giving money to LC for no reason.

Perhaps you have some sophisticated scheme which makes this profitable, but I don't see it.  You certainly haven't explained it to us.

Why on earth do you have student loans if you have the money to pay them off?

yojoakak

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Re: Invest in my own Loan?
« Reply #3 on: April 08, 2015, 04:16:30 PM »
Back in the days when loans would site on the site for weeks waiting to get funded (does that happen anymore?) I used to wonder if people invested in their own loans, to get the ball rolling so to speak.

It is interesting to note that a student loan cannot be discharged in a bankruptcy, but a LendingClub loan can.

coloan

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Re: Invest in my own Loan?
« Reply #4 on: April 08, 2015, 06:09:42 PM »
Thanks.  Definitely no sophisticated schemes here.  Bottom line is I'm just looking for a way to use my existing capital to cash flow my student loan rather than use all the money to just pay it off. My initial thought was to invest the $10K into LC loans, and (hopefully) make a greater return than what I pay on the student loan...thus using that LC investment return to pay the student loan, and potentially even make a profit. But then I started thinking, what if I just took out an LC loan myself which would be at a lower int rate than my student loan, used it to pay off the student loan, and then turned around and invested in my own loan...so I lowered my interest rate as a Borrower AND I'm paying myself back (and LC).

Again, all insight and critique welcome.

Fred93

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Re: Invest in my own Loan?
« Reply #5 on: April 08, 2015, 06:31:43 PM »
If you don't want to pay off the student loan entirely, then pay off part of it.

bobeubanks

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Re: Invest in my own Loan?
« Reply #6 on: April 08, 2015, 06:37:08 PM »
I guess I still don't follow your plan.

You have $10K in student loans
You have $10K in cash.
You want to borrow $10K from LC to pay the student loan.
And you want to use your $10K in cash to buy your own LC loan.

Did I get that right? If so, I'd advise using the $10K to pay off the student loan and then invest the new increased cash flow from no longer paying the student loan in LC or elsewhere.

Lovinglifestyle

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Re: Invest in my own Loan?
« Reply #7 on: April 08, 2015, 09:06:56 PM »
How would the logistics work?  Once the loan gets posted for investors, couldn't somebody else snap up all or part of it before you?

brycemason

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Re: Invest in my own Loan?
« Reply #8 on: April 08, 2015, 09:20:39 PM »
I have a better idea. Call your new company ColoanClub. Make a loan to yourself, with the proceeds going to pay off the student loan. No origination fees and whatever interest rate you like. Make payments to yourself with no servicing fees. If you default you can beat yourself up for collections.

Fred

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Re: Invest in my own Loan?
« Reply #9 on: April 08, 2015, 11:08:46 PM »
I guess I still don't follow your plan.

You have $10K in student loans
You have $10K in cash.
You want to borrow $10K from LC to pay the student loan.
And you want to use your $10K in cash to buy your own LC loan.

Did I get that right? If so, I'd advise using the $10K to pay off the student loan and then invest the new increased cash flow from no longer paying the student loan in LC or elsewhere.

Perhaps it's more like this:

Before:
- Student loan  : $35,000 charging 10%
- Cash at bank  : $10,000 earning 0.5%


After:
- LC loan       : $35,000 charging  7%
- LC investment : $10,000 earning   7%


RT45

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Re: Invest in my own Loan?
« Reply #10 on: April 09, 2015, 12:07:05 PM »
What if he is investing via his IRA in Lending Club?

rawraw

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Invest in my own Loan?
« Reply #11 on: April 09, 2015, 08:54:22 PM »
This makes no sense buddy. The origination fee and servicing fees? Elimination of tax deductible interest for regular interest? Just pay it off and invest your monthly payments or invest it in something with a tax adjusted higher return than the cost of loans. It's hard to do the latter

BBingo

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Invest in my own Loan?
« Reply #12 on: April 10, 2015, 10:45:20 AM »
I could envision a scenario where you took out a 10k loan, let it go into default and then attempted to buy up the note(s) at a discount rate, thus creating money for yourself, but there are a bunch of issues with that. First, it's fraud. Second, you'd have to be able to buy up your loan or pieces of it when they came available, which is unlikely. Finally, you'd take a credit hit. Doesn't seem worth it.


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sensij

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Re: Invest in my own Loan?
« Reply #13 on: January 27, 2017, 08:55:19 PM »
What if he is investing via his IRA in Lending Club?

Sorry to revive an old thread, but google searching did not yield any more current discussion of the topic than this.

If an IRA is involved, there is actually the potential for this to make sense.

Let's say the student loan rate is 7.24%, the same rate available from lending club, and the student loan interest is not deductible due to income limits.

Let's also say that that only cash available is in the IRA.

Let's say a $4200 LC loan is taken to pay a $4094 student loan balance, and the loan is successfully purchased through the IRA.

Over 36 mo, the original student loan would have been $126.86 / mo, for $4567 total to pay off.

The lending club invester pays 4200.
The lending club borrower pays the monthly payment is $130.15 / mo, for $4685 total.
The lending club investor receives 99% of the borrower's payment, or $128.85 / mo = 4639. (4639 - 4200) is a net of $439 gain

Also note that after the 4% origination fee is subtracted ($168), the borrower still had to pay $62 to fully pay off the student loan.

Lending club route: -4685 + 439 - 62 = 4308 total cost to pay off the loan.

Total amount saved by going the lending club route is (4567 - 4308) = $259

Whether or not it is possible to present the loan in such a way that no one else would want to buy it, I don't know, but it looks like there is justification here to pursue it under a narrow set of assumptions.

What could the IRA money have yielded risk-free?  A 1.6% CD for $4200 would pay $205 over three years.
« Last Edit: January 27, 2017, 09:03:25 PM by sensij »