You Asked for it; My Experience with Peer to Peer Lending
In Where to Get a Loan; Help I’m Really Struggling last week I wrote about peer to peer lending for those of you who need some extra cash. Many commenters asked about my experiences as a lender. Full disclosure, I started lending to borrowers through Prosper.com in October, 2011 so I don’t have too much history to report. As of January, 2012, my annualized investment return is 7.66%. This return is quite short term and not of too much value yet, but I’ll continue to update my results as time goes on.
Prosper advertises over 10% returns which includes a quantified default rate on some of their loans.
10.69% Returns With Prosper
Why Am I Lending? Like many out there, I’m looking for a higher return for some of my portfolio. In fact, like a banker, there is a possibility of 10.69% Returns With Prosper.
Why Prosper? I read about the concept many years ago, but not until I met one of the key employees and grilled him endlessly, spoke to another large investor, Peter Renton of Social Lending Network, and read through the SEC corporate documents did I decide to invest.
What is the risk of lending in this platform? A borrower might default and you lose your investment in that particular loan. The company might fall on hard times and you lose some of your investment.
How do I compensate for the risk? I only put a small amount of money in each loan. I invest in many loans to diversify the risk. Ultimately, I will invest less than 3% of our overall investment portfolio.
How does it work? You can either automate your investing, or read about each individual case and choose which loans to fund. Want to narrow your choices even more? Set specific parameters for your loans.
Investment returns? It is too soon to analyze my returns as my dollars have been invested slowly over the last 2 months. Check out Prosper’s site to read more about lending money with Prosper. For the thorough investors, there is a link to Prosper’s Securities and Exchange (SEC) legal documents as well!
Caveat, this is not a recommendation but an introduction to an investment product. Please consult your own financial advisor before considering any investment product. As stated in my disclosure, per FTC guidelines, this website may be compensated by companies mentioned through advertising, affiliate programs or otherwise.
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What are your thoughts on the peer to peer lending format? Would you consider lending or borrowing?