Would it be wise to loan for a vocation?

Will you invest in people who loan for vocations? 

For years I’ve been fascinating about this culture conflict in consumption habits: westerners’ borrowing versus Chinese’s saving habits.

China enjoys the highest personal saving rates over the world. Most people put almost 50% of their income into saving accounts. Comparably, the average U.S. personal savings rate has been around 5% for the last few years. Chinese would save every dollar for housing, education and health care, if not the last, travel would never be of the first priority, let alone borrow money for it. However I notice there is a great amount of money borrowed by kiwis for holiday expenses (the third largest proportion among all purposes) in one of the p2p platform in New Zealand.

Source: Harmoney Marketplace Statistics

Old habits die hard. I could only think of one reason why Chinese won’t accept a borrower’s life. It is the uncertainty about future and a long-time attitude about saving money for the rainy days.

But indeed, that attitude reflects the decisions I made in p2p lending investments. I never lend money to those who borrower for holiday expenses and neither will I encourage others borrow money just for entertainment.

For travel lovers, being in debt won’t drive them to crazy as long as they enjoy that very moment. But from a lender’s perspective, the reason of the loan does play an important role in selecting the listings. I do not believe in so called once-in-a-lifetime chance of travelling that worth borrowing thousand dollars. You can always do it latter. Even if you could not do it latter, you can’t do the Bungee jumping at 70s, you would always find something else worth doing then.

People forget joy easily. Let’s do the painful math.

Suppose you borrower $12k for 3 years with a 6.99% p.a. rates and you repay monthly. Under the 3 year term you would have to repay $384.36 per month. At the end of the term, the total cost of borrowing would be $1,837, the total repayments (Principal + interest) will be $13,837. In addition, you’ll have to pay the establishment fee of $450 for loans $5,000 and above and that add final total payments to $14,287 (We do not include any of the dishonour fee or overdue fee here). Some p2p use .1% service fee for each repayment and it acts pretty much the same as establishment fee.

You may say that $14,287 won’t buy you the pleasure that the travel could bring you. But I suggest people think twice before you decide to take a moment’s pleasure exchange with a long period of suffering in debt.

You will regret about it in the end.