Have you ever lent money through a peer-to-peer site?

3 Comments

  • Jim - 14 years ago

    I also had a prosper account and was very disappointed in the return. The problem was the rating system they used. I invested in people who were rated "A" or "AA" (best) and still had a high default rate. Then I changed over to Lending Club and have had very good results. I have been lending thru them for over a year and haven't had a single default.

  • Elise - 14 years ago

    Sadly, I have to disagree with Scott. I've been a Prosper lender for almost 3 years now, and continue to have new defaults. The only thing that will end the defaults is when my last loan goes there. My Prosper portfolio had a predicted 14+% ROI, per Experian, yet my actual Prosper portfolio has a 1.4% ROI, which continues to drop. I think Scott may be very disappointed at the end of his p2p run.

  • scott - 14 years ago

    Peer lending is new and not well understood - I earn 10+ percent on hundreds of thousands of dollars, and i know of several poeople with multiple millions also earning 10%+.

    Before diving in, there are three things every investor should understand

    1) Defaults are part of the return formula, just like they are for banks. Peer Lending is better called bank disintermediation, which lets individuals earn money the way banks do. This means that if you loan people money at 17%, 5-7% of these people will default, resulting in an expected return of around 10%. The article mentions this scenario as if the investor is dissapointed - he's just uninformed.

    2) Diversification is an absolute must - ideally investors should have more than 400 notes. No bank would ever make just one big loan to one borrower, they loan to thousands of people, which means they can get predictability of defaults based on 50 years and 50 million credit histories. in this way, 17% loans can predictably provide a 10% return. I should note that I only have this experience with Lending Club, and I have seen Prosper results which are not as good.

    3) Defaults come mostly in the first 18 months of a 36 month loan. So year one, you are likely to see about 10% return out of 17% loans, year two, you could see as low as 4-7% returns, but by year three, your remaining borrowers are very unlikely to default, providing the entire 17% for the last year, netting a three average of 10%

Leave a Comment

0/4000 chars


Submit Comment