P2P lending is making big changes in the world of lending and banking. Peer to peer lending, for those who don’t know, is a lending situation that removes the bank. It is people lending to people. I am a huge proponent of P2P lending as an investment option to help diversify your portfolio.
Prosper was the first option for peer-to-peer lending, but it had SEC filing issues that put the company on the shelf for a short period of time. Since returning, Prosper claims lending rates as low as 6.59% (based on credit history) and 10.69% returns.
As with the other sites I discuss on this post, Prosper allows you to invest in a portion of a loan in $25 increments. You can review the loan application and decide if it is a worthwhile risk. Higher risk borrowers, determined by credit score and a number of other factors, have to pay a higher interest rate. You keep the interest and get your principle back, just like a bank. However, if the borrower stops paying, you lose out.
You can try the Prosper Marketplace to get started.
I have written about Lending Club many times in the past. Lending Club was one of the first major P2P options available for people like you and me to get loans at competitive rates and invest for high returns.
My net annualized return with Lending Club has been 9.83%. If you are looking for a way to beat bank account returns, bond returns, and stock market returns, this is a great way to go. Just beware that returns are contingent on your loan recipients paying you back.
Sign up for Lending Club here.
Kiva is a non-profit microlending organization that allows you to make loans to people in developing countries. Like Lending Club and Prosper, you are lending directly to people who need the money.
Unlike the others, however, Kiva is designed to help people make large improvements to their lives and businesses through small loans. I have made three Kiva loans so far and have been happy with the results. You can both make money while helping people in true needs, but the risks with international microloans are higher than LC or Prosper.
I don’t get anything from pointing people to Kiva, but if you sign up through my Kiva link I can track how many people I have referred. Give Kiva a try here.
Learn More about P2P Lending
My fellow Denver local Peter Renton maintains a great blog 100% dedicated to social lending. Be sure to check out his site, Social Lending Network, to stay on top of peer-to-peer lending news and strategies.
Image by MoneyBlogNewz/flickr
5 thoughts on “Social Lending Options”
Nice post Eric and thanks for the mention. Just a clarification for your readers. Lending Club makes you invest in $25 increments but at Prosper you can invest any amount of $25 or more per loan. Prosper is a bit more flexible that way.
I am newer to Prosper than LC. Thanks for the update. Your mention is well deserved.
I currently use lending club. my returns have been horrible since the recession 🙁
That’s too bad. What type of loans were you in? Did you have a lot of defaults? How many loans did you have?
I have 38 current loans, 7 defaults and 4 that are 31-120 days late. My net annualized return is .34%. total loans equal 58. I tried to say in the C and above on my loans.
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