I’m not sure how lending money to people over the web differs from any other type of unsecured lending. Lenders look at the same information – credit score, job, pay, debt to income ratio. It’s the quality of underwriting that counts – how fussy you are about borrowers and how carefully the information they give you is checked. Doesn’t matter if it’s over the web, telephone or in person at the local bank. It seems to me that Prosper dropped the ball in the underwriting department. LendingClub looks considerably better, IMHO. But time will tell. There’s no problem with P2P, but there may be a problem with how well it has been executed so far (and let’s face we have only had a couple of companies with limited lending experience try this).

If I needed a loan, why would I pay extra to get that money from a Bank (with their extra overhead). As a borrower, it’s all about the rate, and, just like with online banking, these online lending organizations probably have lower overhead which should free up lower rates for borrowers, and higher rates for lenders.

As I’ve read elsewhere, P2P lending is a new asset class. When I see the RATE of defaults decrease, and see a correlation to other asset classes, I might find it a reasonable risk to use as one investment.

I know firsthand as I took my 25 dollar signup bonus and funded one A-rated borrower. Got about 5 payments before that borrower went into “bankruptcy counseling” last November.

I wonder if this loan is considered a default, if not, how long, (and how many others like it) are in limbo and don’t count as failed loans.

I do get to look at the not so pretty borrower credit score graph change that went from “750-799″ to “499-”….:( All the nice tools in the world can’t change the reality that you are making unsecured loans.

There’s been a lot of type around these peer-peer sites. On Lending Club, I was amazed at how “well” off these people were. Listed professionals with higher than average credit scores asking for loans under $2,000 had me racking my brain. I understand if they’re looking for a lower rate, but given their stats – wouldn’t they be able to take those steps on their own?

Sites like Kiva.org offer more social investing. Many of the individuals may not have the same banking opps as here in the US. Plus, your investment goes more towards ending poverty than backing bad decisions.

I’ve been investing with Lending Club for a while now, and while I’ve only got about $300 invested right now – so far I’ve had a positive experience. All my loans have made their scheduled payments, and I have a zero default rate. Of course, with Lending Club you can choose only to invest in whatever loans you’d like – and borrowers have a credit check run, in addition to income verification, and other safeguards. You can even ask the borrowers questions about their situation, why they’re getting the loan/etc.

Each lender is given a rating with the best being A going down through E (I think?). I’ve been very careful about which loans I invest in and have only invested in A or B grade loans. So far I’m making about 11.2% on my money. Better than a high yield savings account. I realize that there is some risk here, but I think you can carefully manage your risk by the types of loans that you’re investing in.

According to lendinstats my actual rate of return is 2% which agrees with my own Quicken data.

I will not continue to do peer-to-peer lending. It is a hassle to keep track of all the principal and interest payments and the rates cuoted on both Prosper and LC are not real. They don’t factor in defaults, fees, etc.

If you want to borrow money just purchase corporate bonds from a Brokerage firm like E-Trade. You’ll get a lower interest rate but the risk is much better understood. After Propser wnt into their quiet period a purchased about 12 individual corporate bonds from different US companies and my average annual return is 9.5% with no defaults so far.