P2P Lending

[Godwynn]

I'm curious if anyone has experience lending or borrowing through a P2P lending website such as Lending Club or Prosper. How was the experience? Any nightmare scenarios?

All questions, comments, criticisms, complains, or concerns are welcome.

[Slug]

Here's a 5 page thread. Best to search the forum before posting new questions.

[disneysteve]

Slug, while I agree that searching before posting is a good habit, all but the last 2 posts on that thread are from 2006. I don't see a problem with seeking current info and experiences. I'm kind of curious myself. Has the P2P lending model matured or has it fizzled out? How has it been impacted by the economic struggles? Has the default rate risen?

[Slug]

A reasonable request.

Prosper has struggled. A lot. They've largely alienated most of the early lenders through very poor risk analysis which had lenders bidding on thousands of horrible loans that appeared better than they were. The vetting has improved, but the PR problem remains. I successfully exited from Prosper a few months ago when the last of my 3 year loans was paid off. I generated a positive return that beat the S&P 500...barely.

I've considered Lending Club, but do not currently participate mainly because the tax filing implications for each of the individual loans feels like more work than it's worth.

Check out Prospers.org for all the latest on P2P lending. You can get great information from very experienced lenders who have lived and learned since the beginning.

[Nightfly]

I joined Lending Club at the beginning of this year (2011). Since then I've put just shy of $1k into my account with them; I'm still testing the P2P waters. I've been very pleased with the results. I am currently seeing an annual rate of return of 10.4%. No bank will ever give you a fraction of that - and certainly not without the onerous fees that they come up with on a regular basis. I stick with pretty specific criteria for the loans that I invest in, which are:

1) No loan gets more than the mininum amount required to invest, which for Lending Club is $25. This will probably change as I continue to invest with LC. This means that I have a portfolio of dozens of loans, which is ok with me as I'm spreading the risk very nicely.
2) I stick with Grade B loans. These consistently offer around 9%-12% (approx.) and are pretty low risk loans. Grade A loans don't offer such attractive rates of return. I might consider C loans down the road but I'm not ready to go there yet. D, E, and F loans are for trapeze artists and stunt drivers.
3) If a delinqency shows on the applicant's information, I don't invest (unless it's at least 3 years old).
4) I want a pretty low debt-to-income ratio - I believe most of my loans feature applicants at no more than 15% (I think, I haven't checked my account in over a week).
5) I look at what the applicant does for a living, their income, and how long they've had their job.
6) I avoid loans for business, weddings, or new "toys" (yep, they're out there). If you need a loan for an ATV, you shouldn't be buying the ATV. I stick with loans for those looking to do debt consolidations and in effect lower their interest rates.

I haven't had any defaults (yet), and all of my loans are current. For awhile I even did weekly $25 deposits directly from my checking account into my LC account but I stopped this only because I recently changed jobs. Full disclosure: I don't work for and am not a "shill" for LC, just a happy investor with them. They also have great customer service.

P.S.: I would love nothing more than to see more P2P lenders like LC decimate vile companies like Bank of America. It would be a pleasure to witness.

[chasingbread]

I'm curious if anyone has experience lending or borrowing through a P2P lending website such as Lending Club or Prosper. How was the experience? Any nightmare scenarios?

All questions, comments, criticisms, complains, or concerns are welcome.

I have had great returns with p2p lending. I have been watching it since 2005, and finally jumped in april '10. I started in what they call Prosper 3.0 which has improved a lot since Prosper 1.0. The forums mention have a lot of the lender from 1.0 who can only relay their bad experiences from 1.0. Good or bad, they reality is that it has improven dramatically since its inception. They were the 1st p2p company, therefore, others were able to learn from their mistakes.

I only have experience with Prosper, but have heard great things about lending club. I liked prosper because they have loans at higher rates, so i just stuck with them.

Most people try out both, and figure out which one they like better.

[DannyK]

I'm curious if anyone has experience lending or borrowing through a P2P lending website such as Lending Club or Prosper. How was the experience? Any nightmare scenarios?

All questions, comments, criticisms, complains, or concerns are welcome.

I recently took out a loan from Prosper and was very satisfied with the experience. It took a few days for the loan to be fully funded, so it is not the place to go if you need an immediate yes or no decision. They will check your credit and will ask for proof of income and identity. You should fax this to them as soon as they ask for it to get the quickest action on your loan. Another tip is to write a good loan description saying what the loan will be used for, and why you feel you are able to pay it back.

Payments are withdrawn each month from your checking account. You can, of course, pay more than the minimum, or pay off the loan at any time.

You can not use these sites to borrow for expenses related to attending school. This is because federal student loan regulations conflict with this model of lending and borrowing money.

But from this borrowers experience, I got a good interest rate, and those investing in my loan are getting a good return on their investment.

Dan

[SeanH]

I had looked at their website after reading the old thread when it got bumped. One of the themes in the old thread was that no one knew the failure rate/rate of return for investing in specific loan grades. That sort of information does appear to be available now broken down into grades and years. It did seem like a really interesting idea, but the more I read about it elsewhere the less enthusiasm I felt for it. The tax implications for one thing are.. non-favorable. The interest is taxed as if it was regular salary income. I saw a comparison someone did where they looked at the amount of money someone would need to invest to diversify based on the minimum buy in of $25. They then looked at the average amount invested by most investors and found almost no one was diversified.

[Slug]

I had looked at their website after reading the old thread when it got bumped. One of the themes in the old thread was that no one knew the failure rate/rate of return for investing in specific loan grades. That sort of information does appear to be available now broken down into grades and years. It did seem like a really interesting idea, but the more I read about it elsewhere the less enthusiasm I felt for it. The tax implications for one thing are.. non-favorable. The interest is taxed as if it was regular salary income. I saw a comparison someone did where they looked at the amount of money someone would need to invest to diversify based on the minimum buy in of $25. They then looked at the average amount invested by most investors and found almost no one was diversified.

Some of the experienced investors actually argue against diversification. In my case I have about 25 loans at $50 with varying degrees of success and one loan at over $1,000 where I knew the guy. That one loan saved my Prosper experience.

In addition, I encourage anyone considering P2P lending to run the numbers themselves. All of Prosper's data is available for download. What you see on the site is the data spun in the best possible light.