Kiva loan duration and repayment schedules

I don't write about making Kiva loans very much anymore, mainly because I don't make Kiva loans anymore! But Kiva loans are a still-working technique to manufacture an uncapped amount of spend in a potentially lucrative bonus category.

I say "uncapped" and not "unlimited," because Kiva loans are very much limited — they're just limited by your ability to find loans that fit within your risk tolerance, not by Kiva's online loan system.

Even if you're just interested in using manufactured spend as a part of your overall savings portfolio, Kiva loans are a strong choice: earning 3% cash back on 6-month loans generates "something like" 6% APY — and you get paid your interest up front (or at least when your next statement closes).

Kiva loan repayment schedules are rarely uniform

At the most recent Travel Con Matt from Saverocity made an important and I think overlooked point about Kiva loans: a loan's repayment schedule is rarely uniform. In other words, a 6 month loan will almost never be repaid in 6 equal installments. Instead, it's more common to see a repayment schedule like this:

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If you make a loan to Eliza today, despite the loan having a "7-month" repayment term, you'll get 64.7% of your money back by April 1 — just 108 days from now.

Why it matters (and why it might not)

I take saving seriously, despite not doing enough of it myself. That's one reason why I get upset at so-called "robo-advisors" claiming to do things they cannot do.

If you do want to include "alternative" investments in your savings portfolio, it's important to evaluate them critically; it's just as easy to make mistakes valuing a high-interest savings or checking account as it is when picking a mutual fund.

Fortunately, in the case of Kiva repayment schedules, you have a big advantage: you get to pick the loans with the repayment schedules that best suit your needs! By picking "front-loaded" repayment schedules, you have access to more of your money faster, letting you put it back to work and increasing your actual APY above the 6% a simple "6-month loan" model would suggest.

That's the good news. The bad news is that Kiva isn't enthusiastic about people cycling money in and out of their accounts rapidly. After doing so for a few months, I was told that I could no longer make online withdrawals, but would instead have to request paper checks. They did not, in fact, enforce that restriction (I was still allowed to request withdrawals online), but as a general rule it's not ideal to use techniques with manual oversight as aggressively as we do techniques that are largely or entirely automated.

In other words, while Kiva loans are a great and still-working technique to manufacture uncapped amounts of spend, you probably can't replace your entire savings portfolio with short-term, high-quality loans.