I guess the piece I don’t understand is how in the world it would be sensible to ever take out a $30k loan at ~25%. I cannot fathom that you’d be saving anything paying such a loan back over whatever rate you’re paying on your credit cards/college debts.
I think the streams are getting crossed.
There are A’s, B’s, C’s and D’s.
With the A’s you’re getting people with verified income, verified credit scores, excellent debt ratio, etc. Rates are around 8%.
B’s have some dings but are generally solid and give you 10-12%.
C’s have warts, big ones. 12-16% on these ones.
D’s are basically throwing money away, those will give 16-20%
F’s are 20%+ and should not even be considered.
The numbers I saw were that it plays out pretty evenly against standard risk/reward characteristics. The default at the higher rates though are higher than the numbers say (at least that was what I remember from my research based on forums and articles) so I stay in the shallow end of the pool.
I can invite you and you get an extra 100 bucks if you invest $2500 or more. Just PM me if interested. Personally I’m considering the Prime. I have more faith in this than I do in equities these days.
What I don’t understand is why As are not dealing with banks? 8% isn’t spectacular for a prime borrower, I get 8.9% on my USAA credit card and my unsecured credit line is at 5%.
The only conclusion I can reach is that service you describe understates risks of As - there has to be warts for a consumer to go to P2P lending and consider 8% to be a good deal.
If you want to lend to unsupported good people, then you might be looking for:
Average for A’s is 7.5% not 8%, I overstated a touch.
7.5% vs 8.9% is still something.
That’s pretty awesome. Not for a financial return, obviously, they don’t give interest. But in terms of supporting people who can use the help, it’s a really great idea. And assuming the stats on the website are accurate, it looks like it’s pretty successful.
For those interested in Lending Club, Mymoneyblog did a write up on how to filter effectively.
Yes, Kiva is legitimate & has seen a burst in popularity over the past several years.
Just an update on this. Given the success I’ve had, I’ve started shifting more and more money to Lending Club. I’ve been testing this for over 5 years and now have a healthy sum both from regular savings and in an IRA.
Below are my results from my taxable account, my IRA is too recent to have meaningful results.
In Funding 61
Issued & Current 117
Fully Paid 59
Late 16 - 30 Days 2
Late 31 - 120 Days 0
Default 0
Charged Off 2
Those are your metrics for fail/no fail. What are your rates of returns per loan, and dollar averaged to aggregate?
Basicaaly, what’s your bottom line rate of return been? If its anywhere near that 8% I might give it a try.
Let’s see. Here’s my taxable account, I target 8-9%.
Details
Weighted Average Rate 9.83%
Accrued Interest $17.06
Payments to Date $3,384.39
Principal $2,948.21
Interest $434.76
Late Fees Received $1.42
Here is my riskiness breakdown:
A(64%)B (23%)C(10%)D(2%)E(1%)
Also something to consider, going for 5 year notes instead of 3 year notes gives a 4.x% premium currently. I’m considering doing that with my next batch.
Are folks still doing this? I’ve been thinking about investing a bit into Upstart but curious if there folks already have experience there.
Funny you bring it up today. It is apparently very popular in Asia, where people (assumedly, attractive female people) secure their loans by sending compromising naked pictures of themselves alongside contact info for their friends and family. Found out about this when thousands of those photos were leaked last week.
Ahh, the internet.
About 6 months after I started this thread, I did open a Prosper account and deposited $5k. Pretty small amount, because I had no real idea of what was going to happen. I set it up to auto-invest any profits back into new loans and pretty much completely left it alone. After 3.5 years, it’s at around $6400, which is a bit over 8% return annually. Less than long-term investment in an S&P 500 index fund (around 10%) but much better than a CD (1-2%). It’s not liquid, of course…the money is tied up in the loans, and if I wanted it back I’d have to stop the auto-invest and let the payments fill up my account. Bottom line, the process seems to work, but it’s not an amazing return.
I had a slightly better return from Lending Club but I started pulling my money out from them earlier this year. The issue I had was taxes - they are complicated and certainly affect your bottom line result more than an index fund.
I guess as a diversification it’s not? a terrible strategy but just remember taxes if you live in the US.
So you’re accepting tons of additional risk and potential tax liability, all to perform under an index fund. Guess that question’s answered.
It’s not necessarily additional risk. It’s different risk. Fixed income versus equity. You’d expect lower, but more predictable, returns. That said, I wouldn’t be investing in US P2P loans right now. Defaults are skyrocketing and all sorts of governance issues are coming to light, so even if your loans perform, the platforms may go under.