Canadian P2P Lending – goPeer Versus Lending Loop
Peer-to-peer lending platform goPeer recently launched in Canada. The platform offers retail investors access to consumer loans. Canadians can invest as little as CAD 10 in each loan and potentially earn a high single-digit return on their portfolio. But goPeer isn’t the only platform in the Canadian P2P lending market. Lending Loop allows investors to buy portions of small business notes. So I decided to compare the platforms.
Both goPeer and Lending Loop charge a fee of 1.5 percent per year, or 0.125 percent per month, for servicing the loans provided through their investment platforms. The fees are deducted from the monthly interest payments that lenders receive, and there are no additional management fees or hidden fees on either platform. Additionally, the estimated return rates for each platform include the effects of the loan servicing fees. Neither startup wins this competition, their fees are the same.
Loan Interest Rates
goPeer offers unsecured personal loans, while Lending Loop offers business loans. So I’d expect goPeer to charge higher interest rates because its borrowers may have fewer resources to repay the loans. And statistics from both websites support this viewpoint. The interest rates on both platforms depend on borrowers’ credit scores. Lending Loop says its interest rates are 4.96 percent to 24.93 percent, and goPeer charges rates between 7.5 percent and 31.5 percent. As with other peer-to-peer loans, interest rates vary widely based on borrowers’ credit scores and this feature encourages higher-quality borrowers to use the platforms. By charging higher interest rates to borrowers, goPeer is better for investors because it can pay out more interest to lenders. But Lending Loop is better for small business owners who want to take out a business loan. This article’s about investing, not borrowing, so I think goPeer wins this comparison.
goPeer and Lending Loop both allow investors to automatically purchase notes in a peer-to-peer loan portfolio. Investors can select different risk settings based on the level of risk they consider acceptable. The platforms can also select a risk setting automatically if the investor fills out a questionnaire. Higher-risk loans receive lower investment grades. These loans pay more interest but are more likely to default. Loans on both platforms receive ratings from A+ to E based on the level of risk. And both platforms screen borrowers so that very low quality borrowers aren’t allowed on the platforms. Again, goPeer and Lending Loop appear very similar here.
goPeer expects to pay out returns of 8 to 9 percent, according to Investment Executive. This is a projected return because the platform was launched in 2020. Meanwhile, Lending Loop was founded in 2014 and has been around for a while. This platform estimates that lenders will earn 7.9 percent if they invest in notes at all quality levels, and 6.7 percent if they don’t invest in anything riskier than B notes. So goPeer may offer higher returns, but it’s too early to know that for sure. Going by the projections, though, goPeer wins this comparison.
Lending Loop has a minimum investment per loan of CAD 25, higher than CAD 10 at goPeer. But that doesn’t mean an investor can deposit CAD 10 and begin investing immediately. That’s not enough money to set up a diversified loan portfolio. Lending Loop allows an investor to start investing with CAD 200, while goPeer requires a minimum deposit of CAD 1000. So Lending Loop may be a better choice for a younger investor or an investor who’s less familiar with peer-to-peer investing. Of course, investing in 8 loans (200 divided by 25) is riskier than investing in 100 loans (1000 divided by 10).
So investors who sign up for Lending Loop may want to deposit more than CAD 200 so they can benefit from more diversification. I’d say Lending Loop wins in this category.
With wins in 2 categories versus 1 for its competitor, I think goPeer wins this contest. But there are a few other factors to consider. Lending Loop may be safer for newer investors. The minimum investment size is lower and small businesses may have more resources to repay loans than individual consumers. But goPeer may be better for Canadians who want to obtain the highest potential P2P lending returns, especially if they’re willing to invest in riskier notes. And there may be less loan concentration risk with goPeer. Either way, peer-to-peer lending is still risky and investors should perform their own research before signing up with either firm.