Can’t say I’m sorry I tried it out, but can’t say I’d do it again.

Is the return on investment simply this 13.5% minus the expense ratio of 1.63% for the first year and 2.83% thereafter?

see also

Also, eBay owns a fantastic little company called MicroPlace that is very similar to kiva.org but offers interest. There is no charge to fund an account through PayPal either. I have been “donating” (I feel like a loan that is tied up for years without interest is more like a donation even if you do receive it back) to kiva for a few years but discovered MicroPlace recently and decided to move my socially responsible investments there due to the interest that is possible.

Firstly the rates they are charging are higher then those of banks. So how do they get the best borrowers, you would have to be stupid to knowingly pay more money just to avoid a bank.

Second the default rates they claim seem low. Canadian banks, (Canada has stricter banking laws) assume higher default rates.

What do collections cost? If you have ever placed an unsecured debt for collection, you would realize that when the economy was good you wold only collect 50%, so what do you think will happen today.

Try to sell those loans when the economy turns around, and interest rates raise. Just like trying to sell a low interest bond during high interest times you sell them for a discount.

For assuming zero risk these people are getting a great spread, every bit as good as a bank gets on three year money.

I know these comments are rather negative, but someone needs to point out the downside or you fall into dangerous traps.

If you ask me a bunch of bankers have figured out a way to bank without assuming any risk.

Remember if you do not know everything about any investment you should avoid it. Personal unsecured lending is the highest risk type of lending there is, and thus the highest risk investment you could take.

There are all sorts of low risk bonds and solid stocks that in the log run will return every bit as well. And at today’s price there are bargains to be had. Short term greed can lead to long term pain.

Lending Club is not offered in my state, either, but residents of all states can participate in the note trading platform. (I live in Michigan.) I just got my account funded and now I can start building the portfolio. I’m not investing a lot, either. I want to see how it goes. But this really connects you more to borrowers than any other method I know. (Other than direct personal loans, of course, but that’s a whole different game.)

If you want to get into this from a charity point of view, there is a website called kiva.com that does microloans to people in developing countries. You don’t get interest, so it’s not really an investment opportunity, but it works on a similar principal, and the intent is that you would get your money back in the end.