Investing in micro/P2P loans

[Frugalifec]

Does anyone here have any experience investing in person to person loans like prosper or lending club? Here is a wiki link if you are unfamiliar http://en.wikipedia.org/wiki/Peer-to-peer_lending

[rosarugosa]

Frugalifec: No, although I've read some interesting stuff about the subject. I don't believe my state (MA) permits this. Have you tried it, or are you just considering it?

[freein05]

As an ex loan officer I would not recommend investing in such loans. They are very high risk.

[rosarugosa]

It does sound like something that can be fun to play with, but only with a very limited amount of money that one can afford to lose. Not a good place to park all of the retirement funds :)

[Selah]

I contribute to microentrepreneurs around the world through Kiva.org, but it's not the same as "investing," really...you can get your money back after the loan is repaid, but not at any interest rate. I just keep re-loaning the same amount I originally lent, to different entrepreneurs. The first was a lady in Kazakhstan who wanted to extend her inventory in her market stall, and after she repaid the loan, I lent the same money out to another woman (an elderly widow) in the Ukraine, who wanted to add to her herd of pigs and goats. I also buy loan gift certificates through Kiva.org to give to friends and family members who don't need anymore stuff but who enjoy helping others. Very satisfying and lots of fun!

[Frugalifec]

I have dipped my toe in the water. So far so good. I think it carries substantial risk though, as Freein05 indicated. My approach has been to diversify by keeping the loans as small as possible, going slow and not investing money I can not afford to loose. The two main investing/lending sites post all of their current and historical data (good loans, bad loans, interest rates etc...) for all to see. If that data is correct it appears that overall it has a positive return that is improving with time. It has been an experiment as well as a learning experience.

[freein05]

It might be fun to pick winners and losers. But don't look at it as an investment.

[jennipurrr]

A few years ago there was a Propser thread on Fatwallet finance where people tracked how their Prosper lendings were going. IIRC, most people lost money at it.

I am of the general opinion that if these people can't get money from the US banking system, which I have found ridiculously easy to borrow money from, they are probably not going to pay it back.

[ToomuchStuff]

It is gambling, not investing.

[ApatheticNoMore]

I have dipped my toe in the water. So far so good. I think it carries substantial risk though, as Freein05 indicated. My approach has been to diversify by keeping the loans as small as possible, going slow and not investing money I can not afford to loose.

I've heard these P2P loans are very risky also. Do you have any criteria you are using to screen the borrowers? I think I respect what you're trying to do here. Something other than dumping all our money in to make Wall Street fat cats rich maybe? Something that seems knowable, other people, etc.? But yea I've heard the actual track records of most of those sites are pretty bad.


The two main investing/lending sites post all of their current and historical data (good loans, bad loans, interest rates etc...) for all to see. If that data is correct it appears that overall it has a positive return that is improving with time.

I'd be skeptical of even that.


It has been an experiment as well as a learning experience.

Yea I can see how it would be that, and I like it as that. There's a small amount of money every month I don't mind giving to charity, to causes I believe in, and I wouldn't mind expermenting with stuff like that. But it is less than I put in more conventional investments at present.


I am of the general opinion that if these people can't get money from the US banking system, which I have found ridiculously easy to borrow money from, they are probably not going to pay it back.

Is it that easy to get money from the banks? It's easy to get money out of a credit card depending on how much they'll lend you, at an interest rate to match, of course.

[Frugalifec]

As far as criteria, I went through the historical data (it's available for download) and found where the highest return was for each criteria listed and screen the loans based on that. I also look at the loan descriptions. Some words are associated with higher default rates than others. Some types of loans default more often than others. For example: an educational loan is more likely to default than a credit card consolidation loan.

I am intrigued with the spread that a bank can make between the .5% they return to me on a savings deposit and the 30% they can charge on a credit card. I understand that they take a high risk and charge additional interest to offset that risk. They also mitigate that risk by the use of statistical analysis and acting on the results. I want to see if there is enough information and analysis technology that was once only in the hands of the bank to make this a viable investment for someone like me. I believe the financial institutions would charge someone a higher interest rate than the risk merits if they could and keep it as a profit. I like the idea of putting my money to work in a way that helps someone climb out of a credit hole while providing a return at the same time.

This could be one more example of how technology is changing how we do business. I can remember paying over $100 for a stock transaction to a broker in a nice office who didn't think he needed an email address. That nice office is now gone and so is he. Now my stock transactions are online for a small fraction of what he charged.