The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: dahlink on March 08, 2012, 08:14:46 PM
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Greetings MMM community,
I'm toying with the idea of trying out a few hundred bucks (300) spread out on prosper.com, which is basically a lending site but the legal jargon changes in the fine print. I'm curious if anyone has any thoughts or experience on this site or similar sites. I DO NOT ENDORSE THIS SITE but am asking if anyone has any experience before I pull the trigger. I'm willing to test the waters but would not want anyone else to. Anyways, good luck with investing everyone. There is lots of tips here but it seems so much easier to constrain my budget than figure out an investment strategy that satisfies me. I am still trying to accepting cost averaging down...maybe one day.
If I should steer clear please let me know and why...i'm like a kid with the why question. Thanks again.
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I was big on Prosper and their forums when they started in 06. Ended up having about 60k invested, went to some meetups, etc. Ended up basically breaking even, maybe losing a slight bit. YMMV. I wouldn't invest in P2P lending because the return isn't there for the risk, IMO. I wouldn't invest in Prosper specifically because they are run by.. Well, people who make poor decisions. They also have terrible customer service.
If you must do P2P, I'd try lending club. Brave New Life has some posts on lending club, he's fairly happy with it.
Good luck!
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Thanks for the quick feed back arebelspy,
It's unfortunate to read that it was a no go for you. However, I will not let your experience go unlearned! I will read up on the other P2P lending club. Thanks again, your advice is highly valued.
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No problem!
Here's the posts I was referring to about Lending Club on BNL:
http://www.bravenewlife.com/07/my-lending-club-experiment/
http://www.bravenewlife.com/08/lending-club-investment-strategy/
http://www.bravenewlife.com/10/lending-club-investment-update-october-2011/
http://www.bravenewlife.com/02/lending-club-update-february-2012/
I would personally advise against it (not because I think it's a terrible investment, I just think there's better places to put your money, you'll mostly only lose opportunity cost), but it's an experience at least.
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Its only been about a year, but my Lending Club account is sure doing a hell of a lot better than any of my stocks, bonds, or mutual funds. $238 in interest on $3600 invested, since August of last year. According to them, that works out to 11.38%
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I'm maybe 2 months into dipping my toes into peer to peer lending. I went with Lending Club since they appeared to have better customer service, better returns, and better odds of eventual profitably instead of bankruptcy compared to Prosper.
Your initial investment is probably too small for proper diversification. You are most likely to experience either significantly more or less than the share of default you would get as a serious investor - either way your return (and perhaps experience) will likely not be accurate. I've skipped over the statistics because it makes most peoples eyes glass over. Personally, I settled on 50 loans ($1250) as the minimum I felt had good odds of giving me an accurate experience without risking too much money.
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I guess I should chime in - I've had a Prosper account since March 2010. I invested approximately $1500 from March 2010 to December 2010. At that point, they modified the bidding system for notes, and I decided not to contribute further.
I placed bids on high interest loans (rated D to HR). I specifically looked for borrowers that had already taken out loans through Prosper, and had successfully been making payments. Originally, there was a competitive bidding system, and interest rates would be driven down as more people put in bids towards a specific loan. In December 2010, they changed this system: interest rates could no longer be competitively bid down, and the auctions would close as soon as a loan had full funding. I did not like this change, so I halted further contributions to Prosper.
It's now about 2 years later, and the notes (3-year notes) are still collecting. I purchased 48 notes ranging from $25 to ~$60. 19 have been paid in full, 4 are in collections, and the rest are current. Prosper calculates my annualized rate of return to date as 20.13%. 20% is a great number, but that's only on about $1500 invested.
I think success with peer-to-peer lending takes too much time, since it requires researching through many listings to find the best notes. With the changes to the bidding system, it also put a time-constraint on finding the best notes before they were gone.
I am glad I tried it, but I can't say that I recommend Prosper.
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I'm having a very pleasant experience on Prosper, my only complaint is that there aren't more notes available. I hand select every single note I invest in. I think a lot of people get into trouble by chasing yield and lending money to people who are likely to default. (That's why the yield is so high!) I skim the loan applications and ask myself (would I lend this person $25 in real life? I've been investing since May, have 55 notes current, none late, and have a return of 12% thus far. I know defaulted notes are a near inevitability, but I feel that diversifying and patience have helped protect me from a huge hit on my portfolio.
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I actually just opened a Lending Club account to test the waters. I'll keep you posted as time goes by, and maybe we can set up a sub-thread for p2p lending if there is enough interest. I'd like to hear other mustachian's experiences as well.
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Opened in May, been adding funds since. So far $2200 in my account with 88 loans funded, 1 paid off and 0 late. I've made $77 in interest so far which Prosper tells me is 12.78% annually.
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I have a Lending Club account. I've had a positive experience so far with a high return, but my account has only been open about six months.
I've already had loans go into default, but the one that got me was a borrower who took out a substantial loan, made one payment, and then immediately filed for bankruptcy. Maybe the borrower planned to screw over the P2P lenders, and maybe he didn't, but it sure felt that way to me.
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In doing research on p2p lending, I came across this site that has a lot of information that will be useful to the novice lender (like me). It also has links to other places to get p2p lending stats and information.
http://www.lendacademy.com/ (http://www.lendacademy.com/)
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I'm one of Prosper's biggest lenders. Getting returns of around 13% or so. Since they restructured in 2009, Prosper's been having much better loan performance after more carefully screening loans. That said, it could obviously be really risky and it's tough to really know true loan performance since the first set of restructured 3-year loans have only just started coming to be repaid completely. If you put in a large number of small loans, say $25 a piece, the probability you deviate significantly from the site average of around 5-16% (depending on risk category) is pretty low.
Considering how poor the economy is now and how well these loans are doing, I'm imagining that things might get even better if we have an employment boom.
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In doing research on p2p lending, I came across this site that has a lot of information that will be useful to the novice lender (like me). It also has links to other places to get p2p lending stats and information.
http://www.lendacademy.com/ (http://www.lendacademy.com/)
The guy running that site, Peter, does a very good job
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Its only been about a year, but my Lending Club account is sure doing a hell of a lot better than any of my stocks, bonds, or mutual funds. $238 in interest on $3600 invested, since August of last year. According to them, that works out to 11.38%
I think this is why I'm scared of p2p lending. By definition, your return will be good until it isn't. Looking at an investor's 1 year performance is meaningless because most loans don't go into default in the first year. I'd be much more interested in an investor's 3 year return, i.e. return on loans that should have been fully paid off. Until you hit the 3 year mark on your p2p lending portfolio, your return will only go down.
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I was big on Prosper and their forums when they started in 06. Ended up having about 60k invested, went to some meetups, etc. Ended up basically breaking even, maybe losing a slight bit. YMMV. I wouldn't invest in P2P lending because the return isn't there for the risk, IMO. I wouldn't invest in Prosper specifically because they are run by.. Well, people who make poor decisions. They also have terrible customer service.
If you must do P2P, I'd try lending club. Brave New Life has some posts on lending club, he's fairly happy with it.
Good luck!
It's worth pointing out that you were investing in Prosper 1.0 before the SEC stepped in and started tracking loans as securities. It was a pretty sketchy time for Prosper, and the prospectus changed a great deal in "Prosper 2.0." Here's an article from Peter Renton's site for anyone who's interested:
http://www.lendacademy.com/a-look-back-at-prosper-1-0-how-relevant-are-the-numbers/ (http://www.lendacademy.com/a-look-back-at-prosper-1-0-how-relevant-are-the-numbers/)
By the way, not trying to rock the boat here. <respect>arebelspy</respect>
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Yes, you are correct. It was quite crazy - and fun - back in the day. It is much more regulated now.
That being said, I wouldn't invest in Prosper due to the people who run it. If I were to do P2P lending, it'd be through lending club.
I don't care for the Prosper management team, and don't trust their decisions to keep the company solvent. And yes, if they go under, there are provisions for a third party to service the loans, but the cost on that will be prohibitive and eat up most (all? More?) of your returns.
Lending Club has the same risk, but I think is less likely to have that happen.
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Lending Club has the same risk, but I think is less likely to have that happen.
Any inkling why? I know rumors of Prosper's solvency has been floated for years. Considering Prosper's business model and volume of loans, I could easily see them staying afloat for a while.
Is Lending club in much better shape?
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prospers.org - though I haven't been there for a few years - has a great forum for discussing such matters.
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Lending Club had a cash flow positive quarter for the first time ever last quarter. prosper has yet to have one, for what it's worth.
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Being my first post, I want to thank everyone for your input. Im also thinking about jumping into the P2P market. Im halfway through setting up my Lending Club account, I guess we'll see what happens. Any other advice for a new investor?
Thanks,
Nate
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Being my first post, I want to thank everyone for your input. Im also thinking about jumping into the P2P market. Im halfway through setting up my Lending Club account, I guess we'll see what happens. Any other advice for a new investor?
Thanks,
Nate
Use a cash-back or points earning credit card to fund the account (LC allows initial funding up to $5000 with a credit card). You'll be up a quick 1-2% before you even loan out a dime!
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I don't quite make it through the requirements to lend. I'd be interested in this once I am eligible though.
https://www.lendingclub.com/info/state-financial-suitability.action
http://www.prosper.com/legal/financial_suitability.aspx
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I don't quite make it through the requirements to lend. I'd be interested in this once I am eligible though.
https://www.lendingclub.com/info/state-financial-suitability.action
http://www.prosper.com/legal/financial_suitability.aspx
For Prosper, it sounds like there are no requirements if you reside in a state other than the seven listed. Am I reading that right?
If so, I wonder why LendingClub is so much more restrictive (and why there's no California-like "$2500 exemption" rule for other states)?
It's annoying: I'd prefer LendingClub based on the opinions here, but I'd only be eligible for Prosper...
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The biggest mistake I made early on in Prosper investing was going only with loans I thought were "safe" and paid low interest. The reality is that none of the loans are secured and an A rating can default just like an E rating can. However the difference in amortization with a 7% loan and 20% makes the lower interest rate much less profitable.
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Being my first post, I want to thank everyone for your input. Im also thinking about jumping into the P2P market. Im halfway through setting up my Lending Club account, I guess we'll see what happens. Any other advice for a new investor?
Thanks,
Nate
Use a cash-back or points earning credit card to fund the account (LC allows initial funding up to $5000 with a credit card). You'll be up a quick 1-2% before you even loan out a dime!
Signed up for Lending Club today. Realized immediatly after that I should have gone through a referral. Oh well.
But thanks so much for this idea! Was about to use my Southwest card... but I've already got a bunch of points. Was going to use my USAA card... but 6k points = $50, which isn't that great of a return. Signed up for the Chase Preferred Something Or Other. 1% back, but I got it because if I spend a certain amount of money in the first few months I get a bonus 40k points. I normally wouldn't spend nearly enough for the bonus, but with the Lending Club transfer I'll have it easy. So, about $450 just for signing up and transferring in $5k. Not too shabby!