You’ve probably heard about peer-to-peer lending before since it is starting to gain in popularity, but it’s still relatively new. Right now, the two major players are Lending Club and Prosper. Right now, Prosper isn’t taking on any new lenders or borrowers while it goes through its quiet period. Lending Club went through the same thing recently, but has since reopened and has gone through all the procedures for registering securities.
Just to get you up to speed if you’re unfamiliar with peer-to-peer lending, it’s actually a pretty simple concept. It really just means individuals borrow and lend from each other, and the likes of Lending Club and Prosper have created the technology and online marketplace to match borrowers and lenders. This type of borrowing and lending has a few advantages over traditional methods. First, it provides a means for individuals to seek money when they may not otherwise be able to get the funding through a traditional channel. This has become increasingly important as credit is even harder to get. And for lenders, it gives people a chance to reach out and help those who are seeking money, investing as little as $25.
Never before could someone in New Jersey find and help someone in California who’s looking to borrow money to start their own business or buy books for college. And when it comes to the bottom line, it can be beneficial to both parties. In many cases, these peer-to-peer loans may carry interest rates lower than what they could get with a credit card or bank loan, and lenders can earn a little more interest on their money than what a savings account or CD at the bank might offer.
But that’s just my quick and dirty explanation. Lending Club has actually put together a quick video that highlights some of the benefits, and if you’ve been on Facebook at all, you’ve probably even seen some of their ads.
More on Lending Club Coming Soon
I’ve been slowly getting my feet wet with peer-to-peer lending myself and started up with Lending Club a few months ago. I’ve been documenting my experience and impressions with the platform and will be doing a more complete review in a few weeks. But I have to admit that it’s been fantastic thus far. So, if you’re looking for more information, stay tuned.
In the meantime, I thought this would be an opportunity to see how many of you are already using Lending Club or Prosper, or have in the past. Like I mentioned above, while the peer-to-peer lending sites are still somewhat new, they have been around for over a year and I’m a bit of a late adopter. I know there are a number of people who have been using them from the start and have had quite a bit of success. So, what about you?
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
I am surprised p2p isn't a mainstream concept yet. It basically functions as a bank but cuts out the middle man.
BankVibe.com calls it an alternative to bank CD's
I tried to sign up on lending club but because of some sort of restriction it isn't available to residents in a number of states, mine being one of those! So hopefully Lending Club will be able to overcome whatever regulation they need to to allow it to continue to expand into those places it is currently unavailable.
Now that you mention it, almost every one of them is a 'D' rated borrower.. Looking at the big picture, almost every 'D' loan I made has defaulted (with the exception of one 'C'. 4 out of 11 sub 'C' loans I have made are still paying, all the rest have defaulted. I have one HR still going strong!
I have a ton of 'C' borrowers and only one has defaulted thus far (most of the loans are over a year old now).. Maybe the name of the game is to stick 'C' and above.. I'm not sure if the added yield is worth the risk of default going higher up the risk ladder..
I wonder what a straight 'C' portfolio would yield? Most are in the double digits and, from my small sample, the default rate seems pretty low.
Of the 7 that defaulted, were they the riskier loans (lower credit rating, higher interest rate)? Just curious.
I have 3 of 50 loans that are 2+ months late. They were some of the first I invested in and had more risk than I realized at the time (looking back at the criteria it seems obvious now). I also noticed that 2 of the 3 stopped making payments when Prosper went into their "quiet period" back in October. It seems like they feel they have less incentive to pay back even though it still affects their credit rating the same.
I've had 3 of the 50 paid in full in less than a year. They were all high credit rating, lower interest rate (but still above 7%).
I am with Prosper.com.. 7 out of 29 of my loans are in default (24.1%).. I am currently at a 14.57% average interest rate.. NOT liking that math right now.
The problem is Americans are loaded to the gills with consumer debt. The economy is crappy and their homes (if they own one) can no longer be their piggy banks due to depreciation. There also seems to be a decided lack of stigma to not paying what you owe in this country. It seems to be way to easy to walk away leaving the lender holding the bag. Where is the shame?
I, for one, will not likely put any more money into this kind of venture. I am moving on to real estate where I have the ability to kick a tenant out on the street if they don't make their payment.
I have a couple loans with both Lending Club and Prosper, and although my sample size is small, both loans are current. I love the idea and think it is a great idea. There is risk of course, but that goes with the territory.
Jekil, yeah I am a little slow in adopting new things. There was a lot of hype about it early on and I was just kind of watching from the sidelines. What really got me on board was the secondary market Lending Club created so you can sell your loan on the open market. Before that I was a little concerned about being required to tie my money up for 36 months. Although I haven't tried buying or selling notes on the market yet, so can't say how effective that is just yet.
I'm a Prosper lender and 2 out of 16 loans are now late after investing in Aug 2008.
I'm not sure about lending more in this weak economy since a borrower would rather pay their mortgage and feed their kids than repay their personal loan.
It's something I'm interested in, but I want to wait until I've bolstered my savings. Then I'll lend out amounts that I won't miss if the borrowers default.
I think the concept is great, but I'm still on the sidelines when it comes to peer-to-peer lending. I've read up on it, but sometimes I feel that the reviews are skewed positive so people can get referrals.
I'm looking forward to read your review in a few weeks, Jeremy.
i put money into lending club, and then subsequently discovered that they disallowed me from funding anything because of the state i reside in.
so, i took it back out.
Surprised that you being generation X, you had not jumped on this before. Looking forward to your posts. I think peer lending is a great idea. My experience has been good so far, and hope to invest more.