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P2P Lending Update

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When I first found out about peer to peer lending, I was excited about it, and I read everything I could find about the industry. Then I wrote several articles explaining the P2P lending process, and answered the questions, is P2P lending safe and are P2P loans are guaranteed?

After getting my initial P2P investments in place, I haven’t had much to write about other than the current situation with Lending Club. I also haven’t given readers any updates on my P2P loans. So far, no news has been good news, but I decided it was time for an update.

My experiences with Person to Person lending

Prosper. My initial investment with P2P lending was with Prosper. Late last year, Prosper was doing a large advertising campaign and contacted me about advertising on my site. Before agreeing to run their advertisement, I wanted to check out their business. I liked what I saw and invested in a few small P2P loans.

I equated Prosper to the Ebay of P2P lending because lenders bid on the loans they give to borrowers. Since then, I have made several more loans via Prosper and I am happy to say each of them is current and has never been late. Granted, most of these loans are only about 6 months old at this point, but it is promising, nonetheless. I am currently earning almost 12% on my initial loans.

Lending Club. After trying out Prosper, I decided to investigate purchasing loans through Lending Club. At the time, Lending Club was giving out $25 referral bonuses to sign up for a new account, and the minimum loan was $25. This made it the perfect “no risk” situation. I signed up, got my $25, and immediately invested it in a P2P loan. The lending process at Lending Club is more like shopping, and I equated Lending Club to the Amazon of P2P lending.

Again, I am happy to report that all of my loans are current with Lending Club. Most of these loans are about 4-5 months old, and I am currently earning approximately 11% return.

Changes in the P2P Lending environment

In early April, Lending Club abruptly announced they were ceasing new lender registrations and loans as they entered a “quiet period” while they registered with the SEC. Lending Club has since resumed normal lending operations, while Prosper has ceased lending operations while they too have filed with the SEC.

How I feel about P2P lending with the current developments

I still believe P2P lending can be a viable investment option for some people and is worth trying if you have the time and money to invest. I currently have a relatively small amount invested in peer to peer loans (less than $1,000), and I plan on monitoring the loans for the time being.

At this point, I believe P2P lending is still in the developmental stage in the US and has room for improvements in several areas. I still think it is a good option as long as one is willing to put in the time needed to study the market and understand how it works. Like most investments, P2P loans are not guaranteed, so there is a risk of loss associated with your investments. I also don’t think P2P loans should be the main form of investment in your portfolio. But used wisely, they can be an additional source of income for you.

Here are what some others say about P2P lending:


Published or updated December 29, 2011.
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{ 11 comments… read them below or add one }

1 Ryan

That’s a very good success rate, Blaine. I only invested in the A grade loans because I wanted to try it out, and to be honest, I’m happy to make double or triple what I would make in the current rates for CDs.

I think I will reinvest my funds as well, but I haven’t added new capital in some time. So far the experiment has gone well. :)

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2 No Debt Plan

I started with Lending Club when they were giving away money to try out the service. I’ve got two loans out, each 9.76%, and they are both being paid back to me on time. I’ve earned a whopping 40 cents in interest in two months. Nice. :)

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3 Blaine Moore

I’ve been lending on Prosper for a couple years now. I have 2 loans that were paid off early, 1 that defaulted, and the rest are all current (although some have had a late payment or two.) My estimated APR is ~19% and I invest in quite a few “riskier” loans (B/C/D credit grades)

I haven’t been putting new money in for a while, but have been reinvesting my returns. So far, a pretty positive experience. The loan that defaulted was halfway through payment so I didn’t lose as much as I could have; just didn’t make anything off of that one loan.

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4 Christine

I think you brought it up in a previous post, but I just wanted to mention Kiva.org. I consider it more of a microfinance/charity organization because you don’t get a return, but it does use a P2P model.

It’s low-risk and often guarantees a feel-good result, if not a financial return.

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5 Ryan

Hi Christine,

I haven’t used Kiva.org, but based on everything I’ve read, it seems just like you described it. It wouldn’t hurt me to look into lending some money out with Kiva.org. The feel good aspect is just as important as the monetary aspect.

Thanks for bringing that to everyone’s attention. :)

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6 Peer Lending Enthusiast - DebtKid

Ryan, nice overview. I agree that P2P lending has huge growth opportunities ahead, assuming some hurdles can be overcome.

Right now peer lending is still very niche. Even with more and more publicity in the past 12 months, both Lending Club and Prosper are no where near household names. In time though, I think they very well could be. The potential is definitely there.

Kiva is great. I’d love to someday be able to justify “investing” there.

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7 Ryan

Very cool, deepali. I’ll be sure to highlight the article in my weekly roundup. :-)

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8 Ryan

Debt Kid,

I think anyone can justify “investing” in kiva. It’s about sharing what we have with others. Definitely a good thing. :)

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9 deepali

I actually posted about Kiva last week (my first loan was paid back!). It’s a pretty cool feeling. I admit I haven’t been keeping track of my Lending Club or Prosper accounts, mostly because they are long-term loans. But I also got the LC sign-up bonus, so as soon as that is paid back, I’ll send it over to Kiva. :)

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10 Brett @ Personal Loan Portfolio

Great summary and an excellent candidate for the next p2p lending carnival. :)

I have been thinking about investing on Kiva.org too. I wish that they would offer a “ZERO return” option. Hmm, I’ll have to explain my thoughts on that in a future blog post…

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11 Dividend Growth Investor

I have loans on Prosper and Lending Club, but nothing big. I read somewhere that the default rate is ticking up at Prosper. Even though the return is higher than say CD’s, at least my CD is guaranteed to not lose value..

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