Peer-to-peer lending - 5 years

Comment: NYTimes article on Prosper and Lending Club. Good read. See further comments below

The Gamble of Lending Peer to Peer


No more banks! Let the people play loan officer! The hype was literally suffused with the rhetoric of revolution when a company called Prosper began operations in February 2006. “Prosper gives people the opportunity to take back the marketplace for consumer credit,” the company’s co-founder, Chris Larsen, said in its news release.

The big idea went something like this: Borrowers would post a request for funds and explain why they needed the money. Lenders could put money into part or all of any loan that caught their fancy. And Prosper (and later, Lending Club) would run credit checks of aspiring borrowers for the lenders, watch for fraud, collect and distribute monthly payments and take some money off the top for itself.

People borrowed for breast implants and home renovations, and lenders pored over payment data in search of patterns that could help them select better borrowers in the future. To the Securities and Exchange Commission, however, all of this looked like investing, not lending, and both companies stopped taking in new lenders for months in parts of 2008 and 2009 to get their regulatory houses in order.


... here’s the far more basic function that these companies actually serve: the majority of customers who borrow use the loans to pay off higher interest debt. They are paying 18 percent or more to credit card companies, and they seek Prosper or Lending Club loans that charge, say, 10, 12 or 14 percent. So as an investor, your return would be the interest rate that borrowers pay, minus the companies’ small fee and whatever money the borrowers fail to repay.

Most lenders throw a couple of $20 bills into many dozens of these loans. And once they do they end up with a portfolio of sorts. So it isn’t a stretch to see how these loans may look, in aggregate, like an entirely new asset class, one that could zig when bonds or stocks zag.

This has attracted investors who are hardly motivated by helping the little guy or needling the banks. Hedge funds are writing seven-figure checks to Lending Club to get in on the action. More conservative types, like money managers for wealthy families, are also dipping their toes in. In total, borrowers have signed up for more than $400 million in loans through the two companies in the last five years.

Comment - my experience:
  • Below are screen shots of my Prosper account
  • It's hard to "play loan officer!" I've learned a lot. I had hoped to make 10%. My reality is more like 3%
  • I now have $ 300 left in Prosper (at one time over $ 4000)
  • I think that with more cautious investing I could make 5-6%
  • If I had a free $ 10,000 I would like to put it in Prosper and just invest in AA loans and see if I could make the 5% per annum
  • Now less interested because I am investing in dividend paying stocks and making about 3.3%
  • My wife is less enthusiastic about Prosper than I. I suppose she is more "risk adverse"
  • To compare my $ 4000 Prosper investment with a good dividend paying stock - let's say Bank of Montreal (NYSE - BMO): The small investor could open up an account in Sharebuilder and invest the same and make 4.8%.


  1. It sounds like you started investing in Prosper several years ago. If you have made 3% and you started before 2009 then I think you have one of the better performing portfolios.

    But things are different know. Both Prosper and Lending Club have improved their underwriting standards significantly and loans originated since 2009 have performed far better, with many people enjoying returns of 10% or more. I have been an investor for 18 months and my returns are in the 8-9% range.

    I hope you consider giving p2p lending another try.

  2. Hey I just wanted to say that I really enjoyed reading your blog


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