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  1. #1
    Keepin it Wheel RubeRad's Avatar
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    Any peer-to-peer investors out there?

    Lending Club?
    Prosper?

    I've got a CD coming to 'fruition', and with interest rates being what they are nowadays, I'm thinking of experimenting with Lending Club (because that's what I have information about from the Mr Money Mustache blog), but I know there's Prosper out there too.

    Also interested in hearing if anybody out there has experience on the borrowing side they want to share.

  2. #2
    Chepooka StupidlyBrave's Avatar
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  3. #3
    Bacon-wrapped Member ahsposo's Avatar
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    Yes.

    DO NOT loan money to friends. You might lose your friend either way but why lose both?
    Quote Originally Posted by 3alarmer View Post
    ...ixnay on the exsay alktay.

  4. #4
    coprolite fietsbob's Avatar
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    I'm Investing in Hiring a friend with the Skills & tools needed, To repair The Porch and Entry To My House .

    San Francisco was Famous for its Post War Chinese lending Clubs , buying Real Estate

    they are really cashing In Now with the Tech Bubble Rental Market,as Land Barons.
    Last edited by fietsbob; 02-01-16 at 08:45 PM.

  5. #5
    Keepin it Wheel RubeRad's Avatar
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    Quote Originally Posted by ahsposo View Post
    Yes.

    DO NOT loan money to friends. You might lose your friend either way but why lose both?
    Lending Club is not loaning money to friends. It is loaning money to anonymous internet strangers who have been pre-screened and assigned an interest rate by the website. It's kind of like kickstarter, if kickstarter were about loaning and repaying instead of preordering.

  6. #6
    Senior Member kknh3's Avatar
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    My 20 year old son invested $500 of his own money in Prosper 2 or 3 years ago. If I read the account summary correctly, his annualized return is a little under 11%. He spreads his money out over the different risk classes. He's only had 3 loans go into default. His contribution to each of these was approximately $25, so it wasn't a huge hit.

  7. #7
    Wookie Fred chewybrian's Avatar
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    We all know Foo is a geyser of insight. However...

    May I suggest you check your local papers for the investment question and answer guy (most have one in the Sunday edition)? Or, try a call-in radio show about investing on am radio.

    I suspect they will tell you that start up businesses have a high failure rate, and the expected rate of return on this type of investment is less than you could expect from blue chip stocks. You have the failure rate chewing into the profits of the ones that do succeed, piled on top of, I presume, high management fees.

    A lot would depend on your time horizon, risk tolerance and tax situation. But, the default wise-guy answer is put your money in an index fund instead--reasonable returns, safety from diversification, and low management fees. Van Guard is a good one.
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  8. #8
    coprolite fietsbob's Avatar
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    One way to have somebody leave you be, never to be seen again , is loan them money,.

    take collateral .. like Pawn shops do.

  9. #9
    on by skijor's Avatar
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    Quote Originally Posted by ahsposo View Post
    Yes.

    DO NOT loan money to friends. You might lose your friend either way but why lose both?
    Speaking of which, can you spot me [another] twenty till payday? What's my tab up to? And is it ok if I pay you back in rubles?

  10. #10
    Keepin it Wheel RubeRad's Avatar
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    Quote Originally Posted by kknh3 View Post
    My 20 year old son invested $500 of his own money in Prosper 2 or 3 years ago. If I read the account summary correctly, his annualized return is a little under 11%. He spreads his money out over the different risk classes. He's only had 3 loans go into default. His contribution to each of these was approximately $25, so it wasn't a huge hit.
    Thank you for a useful response! That return rate sounds comparable to what MMM is getting from Lending Club (here's a link, I guess I should have put that in the OP). He got a lot more defaults, he also invested a lot more money (about $30K) but I think he was leaning towards higher interest/risk, and still ended up with about 11%.

    I do like that aspect of the model where loans are (can be) split up among multiple lenders, that helps spread risk around even more than just taking on many (whole) small loans, rather than one single larger loan.

  11. #11
    Keepin it Wheel RubeRad's Avatar
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    Quote Originally Posted by chewybrian View Post
    ...start up businesses have a high failure rate...
    If you are thinking of startup businesses because I said "like kickstarter", that's actually one way these peer-to-peer investment systems seem to be different than kickstarter (and indiegogo etc). The kickstarters seem to mostly be about startups, with a little bit of "I just need some money".

    Borrowing customers of Lending Club/Prosper seem to be more individuals rather than businesses, borrowing money for things like debt consolidation (credit cards, student loans, car refinance, etc), weddings, home renovation, school, etc. Not so much "I want a business loan"

    Or at least that's my impression, I may be wrong, which I why I started this thread hoping to find experienced peer-to-peer lenders. But maybe they're just not here in BikeForums/Foo.

  12. #12
    I STILL miss East Hill :) Rollfast's Avatar
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    Quote Originally Posted by RubeRad View Post
    Lending Club is not loaning money to friends. It is loaning money to anonymous internet strangers who have been pre-screened and assigned an interest rate by the website. It's kind of like kickstarter, if kickstarter were about loaning and repaying instead of preordering.
    That's worse...then you have no idea where to go to get the dude to pay you and the excuses are typed.

    Why don't you put your money where you are at? Everyone seems to be begging on the internet for everything these days, whether it's for Johnny's cancer treatment bills or money to market a widget arm and you may never get a DIME for that (Kickstarters DO FAIL)...

    You are a far more trusting person, or a subject of Phineas T. Barnum (one born every minute), depending on perspective and outcome.

    If the Club goes belly up there is no certainty that you are going to recover anything, much less if the ANONYMOUS borrower defaults. Smell like limburger cheese to me, and I wouldn't touch that with a 3.048 meter beam (10 foot pole).

    PS Ever heard of the Better Business Bureau and search engines? They will know more than we do. We deal with bicycles.
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  13. #13
    Keepin it Wheel RubeRad's Avatar
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    Well Prosper and Lending Club have each been going for I think 3 or 5 years now. Lending Club has funded over $13 billion in loans. Historical annualized returns for the least-risk (least-interest) class of loans is 5.23%. Google has invested in this model. Banks are starting to invest in it too; it's not going away. From The Economist:

    As for the supply of capital, institutional investors now account for two-thirds of loan volumes. “We haven’t used the term ‘peer to peer’ for the past three years, just like Facebook doesn’t call itself a social network,” says Mr Laplanche. Investors such as insurers and sovereign-wealth funds have assigned pots as big as $100m.
    The model is essentially a crowdfunded bank. People that have money get to play bank, and make interest. People that need money get to play borrower, and get a loan and pay interest. There is plenty of room between the low rates that banks give out for savings/CDs, and the high rates they charge for loans, for these communities to settle in the middle, for a mutual benefit. Presumably (another question for people that know more than me) defaulters take that hit on their credit score, so consequences are as real as defaulting on a bank loan.

    From their FAQs:

    It is unavoidable that some borrowers will stop making payments on their loans altogether, regardless of any additional collections efforts. When borrowers miss several payments and there is no longer a reasonable expectation of further payments, a loan becomes "charged off". A charge off typically occurs when a loan is 150 days past due. When a loan is charged off, the remaining principal balance of the corresponding Note will be deducted from the investor's account balance. Lending Club may sell charged off loans to a third party that attempts to collect the outstanding payments. In the event that funds are recovered by Lending Club on a previously charged off loan, investors will receive a pro rata share of the recovery amount, less any collections fees. In general, recoveries on previously charged off loans are infrequent.


    But part of the point is, if you loaned money to somebody and they default, you don't take the whole hit. You probably only contributed $25 or $100 to the loan, the rest is spread out among other investors. That way the risk is spread out more evenly, and you can better count on achieving close to statistically average default rate.

    This thread is turning into "I will tell people about Lending Club", rather than "Please tell me what it's like in Lending Club or Prosper". but that's OK.
    Last edited by RubeRad; 02-02-16 at 02:54 PM.

  14. #14
    Wookie Fred chewybrian's Avatar
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    Quote Originally Posted by RubeRad View Post
    ...he...still ended up with about 11%...
    Checking out the link, which is interesting, this is his return *so far*. It does not look like one single loan has been paid yet, including both interest and principal. Further, he makes a very good point in his article:

    It remains to be seen how this stream of payment would hold up to a recession.

    It could turn out to be much more volatile than the S+P in a bad market. The (very short duration) 'historical rate' listed in their ad by the Lending Club company is 5.06 to 8.74%, for A through C loans, and maybe it's higher for higher risk loans. The historical rate of return for the S+P is about 10% , and you could expect something just shy of this in the long run in a low cost index fund, with almost 100 years of history to back it up.
    Campione Del Mondo Immaginario

  15. #15
    Keepin it Wheel RubeRad's Avatar
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    Quote Originally Posted by chewybrian View Post
    'historical rate' listed in their ad by the Lending Club company is 5.06 to 8.74%, for A through C loans, and maybe it's higher for higher risk loans.
    I saw a graph somewhere yesteday that I can't find again right now, showing rates for A-G (for some reason F and G were lumped into one category on the graph -- makes me quite suspicious of G!), and returns accounting for defaults increased only negligibly beyond C. I think E was the highest at like 9.25, D and F/G were high 8's.

    It remains to be seen how this stream of payment would hold up to a recession.
    Yes, that is an interesting point to consider. MMM is conducting an experiment with a small portion of his portfolio, so he is willing to accept a smaller return than an index fund (or I suppose the near-impossible result of a total loss), but so far his returns seem to be reaching an asymptote of around 11%, which is higher than 10% ("However, that number can be very misleading") and 11% is quite good.

    For me, I would also be investing experimentally, with a relatively small amount. It's not like I'm converting my 401(k) to peer-to-peer lending or anything! I'm just going to take a few Large coming out of a CD where they've been doing basically squat, and seeing if I can make it do something.

    I've read that Lending Club actually has a thriving market for investors to resell their loans to each other, so in theory it should be not too difficult to liquidate quickly if necessary. I would hope like within a few days, with some accounting for npv so you get cash out appropriately higher than just outstanding principal. In fact, that might be a good way to cash in an initial lump sum, if you don't want to hunt and search for hundreds of applicants to give $25 to.

  16. #16
    I STILL miss East Hill :) Rollfast's Avatar
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    Quote Originally Posted by RubeRad View Post
    Well Prosper and Lending Club have each been going for I think 3 or 5 years now.
    US Bancorp's origins go back to 1891 for U.S. National Bank Of Portland and First National Bank of Minneapolis among several others and was one of the original nationally chartered banks by those Minnesota roots. As an accountholder in my 25th year, I'm not fully impressed.
    Quote Originally Posted by 10 Wheels
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