Personal Loan Reviews
SoLo Funds Review: What the Community Finance Platform Offers
One of the first FinTech tools I heard about was Lending Club. Originally, this platform was known as “peer-to-peer lending,” but that eventually morphed into “marketplace lending” once institutional investors took most of the “peer” part of the service. So, when I first heard about SoLo Funds (via unique circumstances that we’ll discuss later), my first thought was that the app represented true peer-to-peer lending — or, as they call it, “community finance.”
So, how does SoLo Funds work and what are the benefits for borrowers and lenders? Let’s take a look at what to know about the platform along with my personal experience over the past few weeks.
SoLo Funds
SoLo Funds: A Decent Idea That Doesn’t Work Out to a Good Deal
2.5
Maximum loan amount
$575 (but starts lower)
Tip range
0% to 15%
Ability to change between borrower and lender?
Yes
SoLo Funds is a community finance platform that helps facilitate small, short-term loans between users. In exchange for funding loans, lenders can earn a tip as selected by the borrower ahead of time. Unfortunately, in order to make your loan request attractive to lenders, it will likely be a significant percentage of your total borrowed. Furthermore, while the SoLo Lender Protection offered may sound like a good investment, it can hinder returns if borrowers pay even a day past the due date. For those reasons, the app in its current state is not one I can recommend.
Pros
- For borrowers: Tip and SoLo Donation percentages are selected by you
- For lenders: Borrower tips can be for as much as 15%
Cons
- For borrowers: Loan requests with lower tip amounts are less likely to be funded
- For lenders: No guarantee of funds being paid back – and Lender Protection could resulted in forfeited gains
What SoLo Funds is and How It Works
Joining SoLo Funds
To get started with SoLo Funds, you’ll first enter (and confirm) your phone number. Naturally, the next step is to provide an email address as well. Before proceeding, SoLo will also ask if you plan to join as a Borrower or Lender. I chose Lender, so my recounting of the process may vary slightly with your experience if you are a Borrower.
Once approved, I was able to add a payment method to fund my loans. Specifically, it invited me to connect a debit card. With that done, I was ready to start lending.
Next, you’ll enter a date of birth and — in a bit of a jump forward — accept terms. Interestingly, the app was able to find my identity just from these pieces of data and matched me to my address and Social Security Number. This is apparently a result of Plaid. In any case, after confirming my information, I received a notification that my verification was in process. Within a day or two, my account was approved.
Requesting a loan as a borrower
Although I haven’t actually requested a loan on SoLo Funds, I have gained some insight into how the process works. First, while the app does allow users to request loans of up to $575, this limit will increase over time. For example, when I looked at my request form, my current limit was $100.
In addition to selecting a loan amount, borrowers can also choose how much of a tip they’d be willing to offer lenders. This amount can be between 0% and 15%. Borrowers are also asked to provide a SoLo Donation, which goes to the platform. Technically, you can also opt out of this, but you’ll need to toggle it off in Settings. You’ll also need to state when you’ll pay the loan back.
Of note, while you can switch between being a lender and borrower on SoLo Funds, there are restrictions. According to an alert I received when trying to switch over, you can request funds if you’re awaiting payback on a loan or it’s been more than 30 days since the scheduled payment date.
SoLo Scores
One of the ways that SoLo Funds helps establish trust between borrowers and lenders is via its SoLo Scores. When users are new to the platform, they may have scores around 60 or so. However, as they establish a positive payment history, their score will increase. Basically, while this functions like a regular credit score, it is proprietary to SoLo and can help lenders make funding decisions.
Finding loans to fulfill
When looking for loans to fund, lenders have several filters they can use. This includes the ability to sort by:
- SoLo Score
- Length of time the loan has been listed
- Amount
- Tip percentage
- Number of loans repaid
- Payback period
- Offers SoLo Lender Protection
With or even without these filters in place, lenders can browse available loans. Each listing includes the user’s score, the amount being requested, the tip being offered, when the loan is due, and the reason why the borrower is seeking a loan. Tapping a listing will then display more details about the total amount that will be paid upfront, as well as how much will be due to lenders (and when).
Something else to note is that, if you see a loan you’d like to fund but aren’t satisfied with the tip being offered, you are able to suggest a different amount. To do this, tap on the loan and then select “Edit tip.” Of course, borrowers will need to agree to the amended terms before proceeding.
SoLo Lender Protection
Since lending to strangers can be a risky proposition, the platform offers what it calls SoLo Lender Protection. With this option, lenders will receive 90% of the loan principal and any SoLo Donation funds back in the form of a credit should the loan become delinquent (more on that phase in the “My Experience” section).
The cost of Lender Protection will vary by loan, but amounts to 5% of the principal. So, a $50 loan may offer Protection for a $2.50 fee. SoLo Funds does note that not all loans are eligible for this option — although I’m unclear on how this is determined.
Finalizing your loan
After selecting a loan, hitting “Proceed to Fund” will then show lenders their funding source and allow them to proceed with funding the loan. But, before the funding is confirmed, lenders will need to agree to terms. With that done, the loan will be funded (pending acceptance from the borrower) and will show under your Loans tab.
CFPB lawsuit
Before we get into my experience using SoLo Funds, it’s important to discuss the issues the CFPB took with the app. Basically, the agency accuses SoLo of misleading customers by saying that its loans are interest-free. First, they argue that the default inclusion of a SoLo Donation goes against this declaration (as noted, customers need to go into settings to disable SoLo Donations). On top of that, the CFPB argues that, while borrowers can select not to offer a tip, a very small percentage of loans get fulfilled with no tip attached.
Personally, I do agree with the CFPB that the option to disable SoLo Donations should be more prominent and not relegated to the Settings. However, as for the other charge, it’s hard to fault SoLo for the fact that their lenders are less inclined to lend money without any reward. In any case, it will be interesting to see what changes may come to SoLo as a result of this suit.
My Experience Lending on SoLo Funds
When I review apps and tools, I like to live with them for long enough to feel as though I have a good sense of everything they have to offer. Then, I try to gather my thoughts and organize them in a presentable way. In the case of SoLo Funds, I think the best way to share my experience is to go through each of the loans I’ve fulfilled on the platform so far.
Loan #1
For my first loan on the platform, I found someone looking for $40 to buy gas. In exchange, she was offering a $6 tip. While her score was a not-great 67, she had repaid 13 loans. So I decided to go through with it — but opted for SoLo Loan Protection. As I saw it, I was giving $2 back of potential profit to prevent losing out on $40.
Even though the borrower did have a history full of late loan payments, she paid hers back to me on time! In fact, after paying her loan back on time, her score increased from 67 to 73. Meanwhile, for me, my stated Return went to 9.52%. All in all, this worked out pretty well.
Loan #2
Fresh off my initial success, I decided to pretty much follow the same script for my second loan. Incidentally, this loan was also for gas, was for $40, and included a $6 tip. However, something different here was that this loan also included a SoLo Donation for $3.60. Because of this, with the $2 Lender Protection enabled, the total amount that was charged to me upfront was $45.60 — with $49.60 then due to me.
This borrower had a lower score than the first, coming in at 59. But, that was partially because this was their very first loan on the platform. In good news for both of us, that inaugural loan was paid back on time (and their score rose to 66). This brought my Return to 9.13%, with $87.60 loaned and $95.60 returned.
Loan #3
Loan number three again stuck to the formula and saw me lending out $40 in hopes of scoring a $6 tip. This borrower actually had the highest score yet with 73 (and 13 loans repaid).
The day after the loan was due, I got an email from SoLo saying that the borrower hadn’t paid and so I was being credited. This surprised me a bit as I took the phrase “if the loan becomes delinquent” to mean that the loan was more than a day or two overdue. I was wrong.
Since SoLo Lender Protection covers 90% of the principal and the SoLo Donation, my credit was for $38.52. Furthermore, unlike funds that are paid, this credit could only be used to make future loans — in other words, it couldn’t be withdrawn. Looking at the borrower’s profile within the days that followed, I saw that they did end up paying back the loan a day after it was due. Alas, it was too late for me as I’d already received my credit.
Naturally, this tanked my Return. After Loan #3, it crashed to 1.30%. That’s $132.40 out and just $134.12 back — with $38.52 of that now sitting as a credit on the platform.
Loan #4
With my credited funds to use, I went to find Loan #4. This would end up being my largest to date, coming in at $50 plus a $3.50 Donation for a $7.50 tip. The slightly higher principal amount also meant that the Lender Protection price was $2.50. Keep in mind, at this point, I was unaware that the other borrower would be paying back their loan within hours of me getting my credit, so some insurance sounded like a good idea once again — especially since this borrower had a score of 67 after four loans.
Frustratingly, this loan felt like deja vu as it ended up being credited to me after the borrower failed to pay on time. This time, my credit was for $48.15. Between spending 5% of the loan on Protection, only being credited 90% of the loans when said Protection kicked in, and missing out on two tips in a row, my Return went negative! Now, it’s -3.25% with $188.40 in loans being made and $182.27 coming back to me.
By the way, I (of course) went back to look and see if/when Borrower #4 paid their loan back. It won’t surprise you to know that it was just a couple of days later. At this point, I’m starting to think that, like in Blackjack, the insurance is largely a sucker’s bet.
Loan #5
Even though I had two negative loan experiences in a row, I was obliged to go for a fifth — for the simple reason that, because the Protection funds are issued as a credit, I had to loan the money again instead of withdrawing it! In this case, I found someone seeking $35 for the purpose of “just for score increase.” They already had a score of 80 and had repaid 24 loans in the past, so this seemed like a fine enough option. Also, learning from my mistakes, I skipped insurance on this one for the first time ever.
A few days after this review was initially published, I got an email from SoLo Funds letting me know that the borrower had missed a payment. In turn, they were presenting me with an offer. While the original loan was for $35, they’d give me $18.73 — but, as they noted, “Accepting an offer means foregoing additional recovered funds for the protected loan.” Also, this offer was only for that day and opening the app even showed a countdown until this offer would expire.
I declined. And, guess what? The day after, the loan was repaid in full! The bad news is that, while the borrower said he wanted to raise his score, it actually fell a few points due to the late payment. However, over on my end, my losses shrunk, with a Return percentage of -0.39% ($225.85 loaned and $224.97 back). Overall, as weird as it sounds to say, I’m really glad that I didn’t get insurance for this one.
Loan #6
Once my loan #5 funds were repaid, I still had $10 in Credit I needed to redistribute in a bid to turn it into withdrawable funds. So, I found another $50 loan that’s due in 5 days. As of this writing, I’ve only just funded the loan so it will be a while before I see the results. But, once again, I skipped taking the insurance in hopes of at least getting back to even. So, I’ll be sure to update once this (hopefully) happens.
Final Thoughts on SoLo Funds
Despite first hearing about SoLo Funds from the press release involving the app being sued by the CFPB, I initially really liked the idea of being a true peer-to-peer lending platform. And while I have some qualms about whether this is actually a good deal for borrowers, who am I to tell them how to spend their money? Plus, even if it is ultimately expensive, I can understand why some would prefer the clear pricing — that they themselves (technically) set.
Unfortunately, while my lending experience started off positively, I found myself growing more frustrated with SoLo Funds as time went on. Specifically, I think it’s B.S. that a customer paying late by one day means that the service is able to not only keep 10% of the loan principal but also the tip — and effectively force me to loan again in order to get that money out. An easy fix for this would be to allow those who opt into SoLo Lender Protection to select how many days they’d be willing to wait for repayment before the insurance policy kicks in.
For that reason, I can’t currently recommend SoLo Funds for borrowers or lenders. But, I do hope that the platform can evolve into something that is fair for all involved (including the company itself).
Author
Other Articles by Kyle Burbank
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