SoFi Reviewed | A Silicon Valley P2P Lender
SoFi was founded by a group of Stanford students, when 40 alumni each invested $20,000 into a team of a 100 Stanford students to build the SoFi lending platform. SoFi is one of the largest growing peer-to-peer networks in the US. The site offers a lot of financial features on their platform.
These features include, but are not limited to: banking services, mutual funds, personal finance, business loans, personal loans, stocks, ETF's and cryptocurrencies all at the swipe of a finger. However, all of these features are limited and lack the depth that traditionally comes with investing.
Types of Loans on SoFi
Personal loans
Mortgages
Business loans
Car loans
Payday loans
Invoice finance
Development loans
Bridge loans
Renovation loans
Student loans
Debt consolidation
Wedding loans
REIT loans
Small Business loans
Cash advances
SoFi Loan Characteristics
Loan duration3 - 7 Years
CurrencyUSD
Buybacks No
CollateralYes
Available inUSA
Returns rate10%
Default Rate
Fees
Bonuses
SoFi Features
Auto-invest
Manual selection
Secondary market
Pooled investments
Regulated
API Integration
High liquidity
Quick withdrawals
Secured Loans
Loan originators
Equity based
Credit based
Diversified marketplace
Award winning
Who is SoFi?
SoFi is an American Peer-to-Peer lending platform founded in the US in 2011. Their approach to P2P lending is to advocate and introduce the new concepts of finance in a simplistic fashion. They have amassed a particularly young following of investors because of the platform's special features and market niche. They are legally referred to as a "Money Management Fintech Software company" and they specialize in student loans. SoFi was invested into by Billionaire Peter Thiel, founder of PayPal and has recently been merged with Social Capital, managed by Chamath Palihapitiya.
SoFi is very class-friendly, it's free to open an account and investors can start earning with as little as one dollar. There are close to no fees for using the platform, just a 2% fee on every transaction. The majority of loans on SoFi are unsecured consumer loans, borrowers can opt to borrow from 5,000 USD to 100,000 USD. The loans range from 24 to 84 months.
Lender/Borrower Ecosystem
The majority of borrowers and investors on SoFi are young American college students or those who have recently graduated. SoFi began in 2011 as a Peer-to-Peer lending service primarily for student loans. SoFi offers a wide array of services for the participants on their platform. It's primarily a platform for educational purposes which keeps in line with the market they tend to.
Though SoFi is known as a Peer-to-Peer lender, it is not actually possible for retail investors to earn with SoFi lending.
The platform tries to only service low risk students who they believe can commit to their loan agreements. Since it's beginning, SoFi has expanded their services to encompass just about every asset class possible.
Investors on SoFi can invest into stocks, ETF's and funds with SoFi. Borrowers can take loans for mortgages, renovations, personal reasons and educational purposes. SoFi offers all of these financial instruments in one application. The platform has integrated itself with companies around the world and is healthily growing in popularity.
How to Borrow?
SoFi offers consumer loans on their platform for a total of 40,000 USD. In order to receive a loan from SoFi borrowers must submit an array of inforomatoin including but not limited to, credit Score, Identification such as driving license or passport, bank account statement as well as any criminal history.
Registration and Withdrawal
Registering with SoFi is incredibly easy and quick. The minimum to invest is only 1 USD.
Users need to have the following in order to participate in SoFi's marketplace and features.
- US Phone Number
- US Zip Code
- US Social Security ID
Users will also need to fill out their necessary tax info in order to register on SoFi. After which, standard KYC (Know Your Customer) must be approved by sending the appropriate legal documents.
Activation of accounts can typically range anywhere from one week to a month, even a few months in the case that further verification is needed.
Marketplace
Many of the loans issued on SoFi are unsecured consumer loans, like on many other American Peer-to-Peer lending platforms. The borrowers who seek out such loans mostly do it for the sake of debt consolidation.
To illustrate what that means, imagine a borrower has credit card bills that are charging him at 20% interest on his 100 USD late bill. This borrower can take a loan at SoFi for a $100 at a 6% interest rate, and this borrower has found a way to pay 14% less than what he should have. This is debt consolidation in a nutshell.
Though, it's unfortunate investors are not granted the option to invest with SoFi Lending, as SoFi still serves as a great option for borrowers who are seeking student loans. Some of the conditions offered on SoFi are incredibly attractive for those pursuing an education. In general, the marketplace on SoFi is comprised of many asset classes. However, they don't go too in-depth, buying stocks is limited to a few companies and cryptocurrencies are only through ETF's. There is no stop/loss function, nor any trading options on their exchange.
To explain further, if you want to buy cryptocurrencies or commodities you won't be buying either. Instead, you will be buying ETF's which are like a piece of paper with a signature that claims you own these things. Which is a little bit different. The only purpose for buying an asset through an ETF would be for the sake of selling it later at a higher price. This is because there is no way to claim ownership of the asset, as it cannot be moved from SoFi.
Such features can also be found on Skrill Payments, Revolut and many online banks that offer investment services.
To further explain, say you want to buy some gold, you can buy a piece of paper that says you own gold assured by a bank, or you can actually buy a bar of gold. An ETF is buying the piece of paper. It would probably be a safer investment if you had the bar of gold in your hands.
Investment Strategy
Investing on SoFi is made simplified in every aspect that it can be. With the exception of a handful of stock options offered on SoFi, when investors invest in SoFi, what they are actually exposed too are several different choices of funds and bonds to choose from. In other words, on SoFi you invest in packages that are either prepared by SoFi or by a third party investment fund.
In these funds, investors are purchasing the rights to gold, cryptocurrency, government bonds, Peer-to-Peer lending, mortgage lending and so on. Anything that can be invested in could potentially be included in one of these packages.
Investors also have the option to purchase fractional shares. Prior to the idea of fractional shares, investors to would have to purchase the full amount of a company stock. SoFi allows investors to purchase a fraction of the stock.
Because SoFi lacks an options trading function or stop losses it makes it difficult to suggest SoFi to serious investors. SoFi is more of a platform for learning about finance in a safe, protected environment. This is possible because SoFi only offers relatively low risk assets in a secured way, while supplying an abundance of financial information for their investors.
Risks Involved
- Default Risk - When a loan defaults there is no guarantee that lenders will see their principal return.
- Inflation Risk - The risk of inflation where a user's capital is locked up while slowly lowering its value due to economic despair.
- Management Risk - The fees associated on the platform and the general health of SoFi's employees.
- Marketplace Risk - The risks associated with SoFi itself going bankrupt. In such a case, a legal team would take over liquidating SoFi and redistribute the remaining capital. In such an event lenders can expect to see a substantial reduction in their capital and returns.
- Callable Risk - Loans can be paid back early, meaning less or no return in interest.
- Economy Risk - If there is an economic collapse, borrowers are less likely to pay back their debt as they most likely won't have the means. Similar to the default risk, but on a larger scale.
- Pricing Risk - The risk associated with SoFi's ability to properly identify who is a good borrower and who is a bad one.
The risks associated with SoFi are more akin to an online brokerage or stock exchange. It's classification of a Peer-to-Peer lending platform is because their primary function is to issue out student loans, as well as other personal loans and give those same borrowers the ability to reinvest their money in to other asset classes.
SoFi is a democratization of finance, but it does not quite enable a lending/borrowing ecosystem. The risks involved mainly rely with which stock, package, or ETF you choose to invest in. SoFi is in the position to become a serious disruptor in the world of financial technologies. The security of their platform is not in question, rather, it is the choice of your investments on SoFi that will bare the most risk.
Transparency & Security
The customer service and dedication to investor education is great with SoFi. They themselves don't want to be a platform for serious investors. Their focus is primarily on those who are not well-versed in investing as a whole, and young students who want a simple way to start investing small amounts of money. Many of the services on SoFi are smoothly automated and integrated into many different markets. Lending takes up the biggest fraction of all the services that SoFi provides.
There is not much reason for SoFi to disclose any of it's loan statistics since retail investors are not relevant to SoFi's success.
SoFi is audited and regulated by the SEC. SoFi is a legitimate FinTech company, considering their track record. The leadership at SoFi can be considered a secure place to invest with.
Crisis Management
The coronavirus pandemic and the Biden administration has come to a crossroad regarding student loans. SoFi's main market being students, puts them in an awkward position.
During a recession, credit markets are the first to go and student loans are not exempt from that. A political agenda to double down on cancelling student loans would damage the platforms ability to be liquid, all of which, in the midst of a recession is basically a nail the coffin on SoFi's biggest industry.
Other than potential political threats, SoFi's business model isn't as affected as other Peer-to-Peer lending platforms like Prosper or LendingClub. That's because SoFi does not manage an entire ecosystem. They are not liable to hundreds and thousands of investors.
SoFi directs vasts amounts of resources to financial intelligence and updates. Their resource center is filled with highly detailed and useful articles on how to better yourself financially. But, as the uncertainty of student loans persists, SoFi remains in a difficult position.
Our Readers Have Asked:
Is it safe to invest with SoFi?
No investment is ever "safe". There is an inverse relationship between risk and reward, as the more risk you take. the higher your reward as well as the chances of losing your investment.
How much money will I make with SoFi?
SoFi works as an investment tool but offers many other widgets to help individuals manage their own finances. Investing with SoFi will produce vastly different yields based on investment strategy and risk preference.
Why do I need to submit ID verification?
Know-Your-Customer or KYC protocols are a standard and necessity to protect your investment account from bad actors and hackers.
Is P2P lending a ponzi scheme?
Some Peer-to-Peer lending platforms are dishonest and shady. The industry is still in nascent stage and while there are definitely some illegitimate companies, there are also many honest, hard working and profitable ones. SoFi is certainly one of those companies that is honest, hard working and profitable.
Watch & (L)earn
Discover more about SoFi in this short but informative video.
Pros,Cons and the Verdict
Pros
- Great Rates for Borrowers
- Great UI/UX
- Regulated
- All-in-One Platform
Cons
- No Retail Investors
- Limited Investing Options
SoFi is a very impressive fintech company that truly brings a simple, more accessible mode of finance to everyone. It is in essence a one-stop shop package where individuals can manage their finances in a comfortable and stress free way. Unfortunately, SoFi is not for those interested in investing in Peer-to-Peer lending, as they simply do not have that option despite being considered one of the best Peer-to-Peer lending fintech companies.
If you're interested in borrowing a loan for educational purposes or wish to purchase stocks in a very safe environment, then SoFi is a great place to check out. Their interest rates for borrowers are very low, almost down to 3 percent. The minimum entry to invest with SoFi is only 1 USD, making it a very affordable place to invest. SoFi, in the future, may very well develop it's investing options and become a fully serviced and equipped investment platform. Even now, with their limitations, SoFi still proves to be a secure and profitable place for investors to utilize.