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Your Take: Do You Invest in Peer to Peer Lending?

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When Prosper and Lending Club emerged a couple years ago, I was skeptical. Back then, they promised above market returns on investment in very small loans with the added bonus of helping people out, even if on a small level. The idea was that you could make small investment, like $25, with others to fund someone’s goal. Even today, Lending Club suggests that you can earn 9.43% on C Grade creditors, 8.26% on B Grade creditors, and 5.81% on A Grade creditors. By diversifying, the thought is that you could get pretty close to these returns even with defaults, since a default would cost you very little relative to your investment. I never got involved because, at least years ago, residents of Maryland couldn’t invest in these securities.

With a few years of history, you can finally see if those promises are true and a site like Lendstats.com puts it all out there for you. It turns out that the yields aren’t as high as the sites promise but they’re fairly close. If you want to see a real time experiment, Jonathan at My Money Blog is putting $5,000 into 200 loans at $25 each to compare them as investments. I’m interested to hear his take on it as he goes. (My friend Nickel just wrote about the results of his three year investment – not that impressive)

Have you done any investing with Lending Club or Prosper?

{ 20 comments, please add your thoughts now! }

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20 Responses to “Your Take: Do You Invest in Peer to Peer Lending?”

  1. Most paydays I put $25 into a new loan on Prosper.com as well as reinvest my returns on an ongoing basis. I’m averaging close to an 9% yield with a relatively conservative portfolio.

    Seems to have worked out well for me.

    You can see my stats at http://www.ericscc.com/lenders/greenback-maniac

  2. lowmagnet says:

    I did. I had about 4-5k in prosper and then they had to file something with the SEC so I couldn’t invest there. At that point I rolled off the payments from Prosper to Lending Club, where my net annualized return is 5.14% for this year, and I’ve made $607.23 since 2009. It’s a bit disappointing.

  3. I tried Prosper–invested $10,000–but didn’t do well. I lost ~$600 by the time all the loans had matured or gone bust. However, I made the investment in the spring of 2008, and the economy soon went down the tubes. I think that accounts for the roughly one-third of my loans that defaulted. I’d like to try it again.

  4. James says:

    In December of 2009, I put $510.38 into Lending Club. They had a promotional match at that time of $64.62, bringing the total I had available to invest up to $575. I manually invested in 23 loans at $25 each.

    As of today, I currently have a balance of $709.57. I have 45 issued/current loans, 15 loans fully paid off, 2 loans that are 31-120 days late (both on payment plans), and 2 loans that have been charged off. Lending Club lists my net annualized return as 8.33%.

  5. Matt M says:

    With the return rates going up so much in recent years this seems like something I have to try.

  6. Mike says:

    Living in MA I can’t use Lending Club. Lame.

  7. I’m making 11% with them, and no defaults yet, but I’m only in for about 6 months. I only have about $300 in each prosper and lending club.

  8. daenyll says:

    My lending club return’s are 10.5+% after nearly 3 years.

  9. Sounds like a lot of work for a potential of losing money. I bet this has some interesting implications on your tax return as well as far as the time it would take to complete any additional forms needed.

    • Tony says:

      Absoltuely… I used both sites for about a year, and while I ended up with around a 7.5% return, the extra time it took me to do my taxes wasn’t worth it for the amount of money I was investing.

      Plus it clearly isn’t too liquid — you can sell your notes on the secondary market, but that can often take quite a while.

  10. zapeta says:

    I did a little bit of lending on lending club, and I think my return was 9%. It was a hassle to pick the loans so I just gave up on it.

  11. Jason says:

    I’m still surprised every time I see peoples comments to peer to peer lending. I have been investing since September ’10 and currently have a 14.5% return. I have one charge-off and occasionally have people go into the grace period or 30-60 days late category. I think most people do not put in the time to come up with a plan and stick to it. I have a certain plan that I use to pick loans and I have been very successful. I like having Lending Club as part of my overall portfolio.

  12. I’ve been investing with Prosper since October with over a 10% return. I have a not to double my investment next week. Since they are overseen by the SEC, I feel relatively confident investing with them. The diversification is what makes it work.

  13. I just got started with both companies. Instead of dropping in a lump sum all at once I’m only making small investments in loans that meet my screen criteria. My plan is to build up the portfolio slowly over time just like I would with an stock portfolio.

  14. shiftomnimega says:

    I would like to try dumping 1k bucks into this. Might be more worthwhile than dumping onto a blackjack table. Some notes I have took from here and elsewhere: never pick a guy that has any late payments and don’t put all your eggs in one basket.

  15. Buck says:

    I’ve been very pleased with my Lending Club experience so far. Tools like Lendstats have taken much of the guesswork out of reading through borrower profiles.

    It’s important to recognize the difference between Lending Club and Prosper from before the SEC got involved and now. Both companies have grown up quite a bit, and returns from 2007 probably aren’t truly representative of returns we’ll see going forward.

  16. I’ve had awesome returns with LC so far. I don’t think the risk is worth it for the lower paying loans(A, B, C). I only invest in high interest loans and I’ve seen a 13% rate of return after 2 years.

  17. Mary W. Oliveri says:

    I like the idea of peer-to-peer lending. I was a member of Lending Club as a person being granted a loan. I was disappointed with my interest rate. Rather than continue with the loan I paid it off after a few months.

  18. Seth says:

    I’ve had pretty horrible results with Lending Club. Unfortunately, several of my loans have defaulted, and at this point I’m just hoping to get back my full investment by the end of it.

  19. Debbie says:

    I have been investing through Prosper for a little over a year. I invest only $25.00 in each loan and roll procees back into other loans.

    Over time I have put in $500.00 an at the end of a year have $59.00 in interest to show for it.

    In that time I have had one loan go bad and oddly it was an A loan. My small group of HR loans seems to be on the whole trying to pay their loans off early.


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