Investing 
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Surprise! Peer to Peer Lending is Risky

Earlier this week, Mark Gimein wrote a great article on TheBigMoney.com detailing, statistically, how risky person-to-person lending really is. I’ve always known it to be peer to peer lending or social lending, but the article calls out the riskiness of Prosper.com, the first and one of the largest of the peer lending networks.

To look at the results of Prosper’s loan marketplace, though, is to see not a solution to the credit crisis, but a microcosm of it. Loans to unqualified borrowers; reliance on mathematical models that turn out to be a lot less useful than they seemed; failed hopes that high interest rates could make subprime loans profitable; sky high default rates—Prosper has it all. Prosper’s Web site advertises returns of 6 percent to 14 percent for lenders. But the reality is that the lenders who loaned $188 million through Prosper have not earned anything like these returns. On the contrary, the majority of them have lost money, as they’ve watched their loans go bad at shockingly high rates.

The takeaway from the article isn’t that you should avoid Prosper, it’s that you probably should avoid peer to peer lending entirely. (In fact, I think Prosper should be lauded for making their loan data public!) There simply wasn’t, and likely isn’t, enough information for you to adequately price in the risk of default. Are things better today than they were in 2007? Probably, but the reality is the peer to peer lending marketplace is a lot riskier than you think.

Whenever there’s something new like this, there’s a subset of its users who will find a way to benefit. For the longest time, the early adopters thought they were the ones who benefited. Unfortunately, as it turns out, the true beneficiaries were the social lending networks (who take a percentage of the loan in fees) and the borrowers themselves (who received loans they probably wouldn’t have qualified for).

When I tweeted this article out, @PotatoPeeler said – “Do we need a whole article to tell us that lending money to random people on the internet is an absolutely horrible idea?” I wholeheartedly agree!

I know people who have been lucky enough to avoid the default plague so far and it seems as though it’s only a matter of time. A little bit of me is now glad that Maryland residents aren’t permitted to “invest” in these loans.

(Photo: nitrofive)


 Debt 
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Borrow Money With Prosper & Lending Club

Earlier this year, I hosted a guest post by Jonathan sharing his experiences with borrowing money from peer to peer lending network Prosper. Just recently, I received the following email from a reader singing their praises:

I’ve borrowed twice now from Prosper and I love it. The first loan was $7000 at 8.65% for three years and the most recent was $8000 at 9.65% for three years. I got the 2nd in response to the credit cards jacking up my interest rate and slashing my credit limit no reason. I was so angry about the credit card behaviors that I wanted to get my debts as far away from them as possible.

There is no hassle, I applied for the loan, watched people bid the initial interest rate down, and eventually got the cash. Once the loan was funded, they called me to verify who I was. You have to provide documentation that you are who you say. They direct deposit the money into the account you specify a day or so later.


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 Investing 
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Prosper $50 New Account Promotion Offer

A New Way to InvestWhen peer to peer lending first started, the biggest name in the market was Prosper. I was skeptical about the whole business of peer to peer lending and it showed in my review of Prosper, which was more about peer to peer lending than it was about Prosper itself. Since then, with the arrival of SEC oversight and other competing businesses like Lending Club, I have a little more faith in peer to peer lending networks.

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 Investing 
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Lending Club 250,000th Lender $2,500 Giveaway

Email Newsletter subscribers will already know this (you should sign up if you haven’t already, you get a couple free eBooks!) but Lending Club is running a promotion this September where you could win $2,500 if you are Lending Club’s 250,000th subscriber.

Click here to sign up and if you are the 250,000th registered investor, you win $2,500. You don’t have to invest a thing, you just need to become a registered investor.

If you do invest, the average return over the last twelve months has been 9.6% APY, which is a pretty nice return. Can’t beat that with the stock market over the same period of time! I’m personally not an investor because I can’t be, Maryland residents can’t invest through Lending Club, but I probably would’ve given it a try if I were allowed to. So it goes sometimes.

Contest ends when September ends, be sure to review the contest terms & conditions to confirm your eligibility. Good luck!


 Investing 
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Who Can Invest at Lending Club?

Try it Now! Join Lending Club.In the comments of the $100 Lending Club giveaway, Reader Barry said it would’ve been nice if I had notified you all about the restriction on Lending Club investors. Well Barry, you asked and thus you shall receive!

There are two parts to Lending Club. There is the actual Lending Club site, where you invest in notes (loans), and there is the Note Trading Platform, where you can trade notes.

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 Debt 
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Borrowing Money from Social Lending Networks

Payday Loan StorefrontFollowing up on Jim’s guide to social lending networks, this is my story of doing business with Prosper, which is a lot like Lending Club. Although Prosper is in a quiet period, my experience with them is indicative of the basic social lending process, and should mirror what you’d get at other active social lending sites.

I hired a local landscaper and dirt mover last June to correct a horrible grading job in my back yard. For the basic hardscaping (dirt removal, retaining wall, and grading), he quoted $5,000. Of course, I needed the cash on hand. I looked at my local credit union first, which could go as low as 9%. Then I heard about Prosper on Clark Howard’s show, and checked it out. After registering and verifying the usual stuff, I created my loan page. Within a week, my loan had been funded.

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 Investing 
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Guide to Social Lending Networks

Certificate of deposit rates are abysmal, high yield savings account interest rates are worse, and the stock market is insanely volatile… which is why so many people have started to turn towards social lending networks like LendingClub, Prosper and Pertuity Direct.

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 Investing 
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Four Peer-to-Peer Loan Investor Tips

Screenshot of LendingClubScared off by stocks and real estate but seeking a higher return than a savings account? Consider testing social lending, where individuals loan money to each other. The returns can be quite attractive, but these loans are often quite risky as well.

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