Peer-2-Peer Online Lending

[ForeverStrong]

Anyone ever try this method of making some nice interest on their money? Just ran across it and would love to hear insights/experiences being a lender on these type of platforms. Thanks in advance!

[cooliemae]

I've used Lending Club for about 2 years now and have been pretty pleased with the experience. Of course you only have yourself to blame for picking the wrong notes to purchase.

2015 will see me come out with about a 5% gain on the money I've invested. I would have been at 9%, but have had a number of charge off's that have really hammered the bottom line. Good news is the charge off can offset other gains and you may see some of those losses recovered the following year. The fees I've paid to LC have been around .5%.

I'm a little more conservative and aim for a 20(A)-40(B)-20(C)-20(D+) strategy, but if you want to be aggressive there are some high returns available.

[97guns]

What are these loans secured with? I'm not familiar with them but am familiar with deed trust loans secured with real estate, you name goes onto the deed and they are paying 10-13% right now

[cooliemae]

P2P Lending is unsecured debt, so there is the risk of individuals defaulting on loans and having to take a loss on the full loan amount, but the benefit is that you're not stuck with any single loan (unless you choose to be). I'm not sure about other sites, but I would assume they're generally the same as LC. You can purchase parts of loans in $25 increments, this allows you to diversify your portfolio not just based on the risk, but also on individual loans.

So currently my risk portfolio is not only spread out in the 20-40-20-20 allocation that I mentioned, but I've further minimized risk by investing in over 100 individual loans, so that any defaults won't hurt my overall return (hopefully).

LC has interest rates from 6.5% to almost 30%, so there is a good deal of flexibility in reaching your desired rate of return.

[disneysteve]

I've wanted to do it but it isn't available in my state.

[JulieAlbright]

I've been investing in these since late 2013 via Lending Club.

I started out with a fairly conservative portfolio because I knew that just a few bad loans would wipe out all my gains since I did not start with a large balance. Once I reached about 200 $25 notes, I started adding in some riskier notes and my rate of returns increased.

I've pretty much quit trying to select the notes I invest in myself. I use the site LendingRobot which uses algorithms of past performances to try and maximize return based on your level of risk comfort. I'm not sure if this site allows referrals but if you are interested contact me. If you sign up using a referral, you get some additional managed funds for free and so do I.

Right now I'm averaging around 7% a year returns and I continuously invest around $100 to $150 a week in new money and re-invest all payments.

Further disclosure, I also own stock in Lending Club, although that hasn't performed all that well yet.

[tripods68]

I have an active account open with Lending Club. But I never participated and pulled money last year. At some point I might get back and invest this time. But I'm still learning the p2p lending, risk, return. Once I can build my confidence to start.

[dczech09]

I dislike peer-to-peer lending, and I advise others to avoid it. I know I will probably get some flack here, but I think we need another viewpoint on this thread

Let me ask this...

If some stranger walked up to you off the street and asked for a $50 loan, would you give it to them? Most people would say that is a ridiculous question. However, that is exactly what P2P lending is. The only difference is that there is a firewall in between the two parties.

You would never lend money to a stranger, so why is it all of a sudden "sophisticated" when you do it online? Your risk of losing money in P2P lending is very high.

Many people utilize P2P lending as a way to invest. I prefer mutual funds because of the automatic diversification that you get. You do not get diversification with P2P lending. Sure, you can invest in A, B, C, and D risk loans, however they are all loans at the end of the day and share similar risks. At least by investing in mutual funds, I can invest in businesses that do not necessarily follow the same 'S curve.'

So I do not invest in P2P lending, and I recommend others avoid it. However, if I cannot talk people out of it, I recommend that people limit their exposure to P2P lending. I advise that people invest no more than 10% of their nest egg in things like day-trading, individual stocks, and derivatives. I lump P2P lending in with that as well.

My investing strategy has earned me an average of 11.27% per year in my Roth IRA. The risk associated with P2P lending is not worth the 5% to 9% per year, IMO.

Also, the typical everyday investor does not have a lot of time to spend watching over their investments. P2P lending requires a degree of 'active management' that most people simply don't want to do or cannot do. I like the idea of buying and holding mutual fund investment; at least people can then spend time doing what they enjoy while assuming a reasonable amount of risk.

Just my opinion. You are welcome to agree or disagree

[tripods68]

I think most people that participate to P2P lending are those with additional cash to invest outside their retirement accounts. But P2P is another investment strategy an asset can be deployed to achieve better ROI return compared to a typical savings account. But they do have risk factor to consider like any other investment in the market place.

If you already have REITs, large cap, small fund, index, International, Bonds, and idle cash, P2P lending can be part of this overall portfolio.

I don't see nothing wrong with this approach. Again, like any other investment strategy, you still have to perform due diligence which in this case, reviewing each account; history, loan purpose, credit score, and their ability to payback the loan, return potential before making an actual investment.

[wvhillbilly]

Let me ask this...

If some stranger walked up to you off the street and asked for a $50 loan, would you give it to them? Most people would say that is a ridiculous question. However, that is exactly what P2P lending is. The only difference is that there is a firewall in between the two parties.

Lending Club has about a 90% loan Rejection rate. They don't let "some stranger off the street" in. They screen very well. Of the 10% that do get approved, however, I can still look at their income, debt, lines of credit, length of credit, number of deliquencies and make an educated decision. Should they choose to default and ruin their credit, Lending Club's collection agency has a pretty decent recovery rate as well.

Sure it's risky, every potential high yield investment is, but comparing it to giving a rando on the street $50 is nowhere even close to accurate.

[dczech09]

Sure it's risky, every potential high yield investment is, but comparing it to giving a rando on the street $50 is nowhere even close to accurate.

You do not know your borrower from Sam, so how is this not an accurate comparison? They are a random stranger as far as you are concerned, no matter how well they are screened.

And you are right, all potential high yield investments are risky. However, I would rather assume the risk of the stock market over the long-term, as opposed to the risk of one loan over a (much) shorter period of time.

[Pstreicher]

Lending Club, my thoughts, all good!

I came here looking for discussion with others on budgeting and so forth but wanted to make a comment or two here on Lending Club. My first post by the way as I just registered a moment ago.
I invested in LC back in July 2015 with the minimum requirement of $2,500. I had joined as an investor way before that, I think it was around January of 2014. I was hesitant to get into this until I finally took the time to download and actually read every page of their prospectus. I learned a long time ago that the prospectus has the meat of the information on any public company if you want to really know how they operate.
It was after I read how they researched and graded people to give out loans and the charts I saw on the various risks you could take in this style of investing that I decided this could be the thing I was looking for. I had seen someone from the company talk about this on CNBC one day too and it got me to thinking about it again. The information in the prospectus soothed my fears and I made the $2,500 from my bank and let LC lend out to 100 different people, or notes, for $25 each. This is pretty diversified as you can get I felt.
Okay, I followed it for a few months and then recently began depositing $100 every two weeks into the LC account for investing. I turned off the auto investing robot and began to browse through the notes on my own to decide on. A wonderful tool they give you is 'filters'. Once I mastered the filters I now can find great rate of return notes to where my portfolio now never shows less than 13% rate of return. Where can you get that at these days.
I have to say now I look forward to browsing the notes every other week to find those lucky souls that want to pay me a good rate of return back on my money. Okay, I know you are fearful and asking, 'But, what about those chargeoffs, the losses?' Well, the prospectus shows there is an average of a 3% loss. Big deal. When you are averaging !3% or better with your smart investing, you can afford a little charge off now and then.
If you want to get into this and discuss all this and more, then let's do it. This company is breaking their own records of lending every year so it doesn't look like they are going anywhere soon. Go download and read that prospectus now and earn some easy money! Come back and let's talk more about all this goodness!

[Spiffster]

The problem I am running into with Lending Club is cash drag. Its taking forever to get my cash invested in a diversified manner. The cash I do have invested is doing quite well though... a lot better than my 401k and ROTH are currently :-/. I will say that my filters are VERY specific, which reduces available loan pool by 97%... so this is mostly a problem I have created for myself, but my returns are (currently) much better than average. Considering my average loan age is only 6 months I expect things to taper off a few percent.

[Nutria]

You do not know your borrower from Sam, so how is this not an accurate comparison? They are a random stranger as far as you are concerned, no matter how well they are screened.

How is this different from any lending institution? All they know of you is your credit score & history, plus what you tell them. Just like with LC.

[dczech09]

How is this different from any lending institution? All they know of you is your credit score & history, plus what you tell them. Just like with LC.

There is a huge difference. First of all, lending institutions are in the business of lending money. We are investors. Traditional lending institutions can focus more time and resources on analyzing/hedging their risks. We as investors are more than likely unable to commit such time and resources.

Secondly, banks and other lenders can do their due diligence. They can check credit, check references, etc. We can only go off of what Lending Club (or any other facilitator) says. We are limited in our due diligence.

Thirdly, banks set the terms and the borrower is at the mercy of their terms. With peer-to-peer lending, you do not necessarily set the terms. A third party (the facilitator) does it instead. So as an investor, you have to choose whether or not you accept that terms; but you cannot set them yourself.

Finally, consider that quite a few (if not most) of the borrowers on peer-to-peer lending sites are looking for loans there because they cannot get more preferable terms elsewhere. Banks and other lenders are already handing loans out like candy, so if someone cannot get a loan in the traditional market, there is little doubt that they are a high risk.

Ultimately, my stance is as follows. I do not recommend peer-to-peer lending as an investment option for regular everyday people investing for retirement. If I cannot talk someone out of it, then I recommend limiting exposure to peer-to-peer lending to a VERY small amount of their portfolio. I would lump peer-to-peer lending in with day-trading, derivatives, and single stocks and limit investments of these types to no more than 10% of a portfolio.

Industry studies have shown that you will need at least 100 peer-to-peer investments in order to make money. At $25 a pop (minimum) that would be $2,500 at a minimum that one would need just to get started.

Again, you can agree or disagree with me. That's the cool thing about this forum!