Peer-to-Peer Lending with Prosper
A few months ago, I signed up for Prosper. It is a peer-to-peer lending service that offers completive rates for borrowers, and good income for lenders. The “How it works” page of their site explains it pretty well:
Lisa Barron needs a small loan. So she posts a listing for a loan with the amount she needs at a rate she can afford.
Joe Davis has a little bit of money to lend. Joe, along with other lenders, bids down Lisa’s rate by bidding the amount he’s willing to lend at a rate he thinks is fair.
When the listing ends, the bids with the lowest rates are combined into a single 3-year loan for Lisa. Each month, Lisa’s payment is deducted from her bank account and deposited into her lender’s accounts until the loan is repayed.
So far, I’m really impressed with the service. I’ve invested $500 over 10 loans, and am getting back about $18 a month. If everything goes well, the loans will pay out at about $650. Even if 2 of the loans default with no payments (well over the historical default rate for the credit range I’m lending to), I’ll make a profit.
Not only is it a great source of passive income, but it is addicting. I find myself checking every few days to see who has made payments, what my ROI is (it is still unstable, since I’ve only got a few months of data), and how long it will be till I can reinvest the interest.
The only real complaint I have is that money invested in Prosper is locked in loans, you can’t just cash out. The best you could do is get a loan and use the payments from Prosper to pay it off. If you’re lucky, the Prosper community will fund it!
And now, since I’ve just ranted about how great I think it is, here is the link for you to sign up:
PeerLend Says :
If you like Prosper, then:
Zopa (who, at the time of this article, operated only in the UK) has launched a US version in partnership with six US credit unions. The model is not quite “P2P”, as lenders are asked to purchase a guaranteed CD (~5%), the purchase proceeds of which Zopa will lend out to borrowers (presumably pocketing the spread).
LendingClub.com, a completely new player, launched via the FaceBook social networking platform, and has just recently opened to the non-facebook public. Their platform is P2P, but it differs from Prosper’s more laissez faire implementation in that LendingClub underwrites the loans, bucketing them into different grades at different rates - doing away with the typical auction process.
More info, including side by side comparisons of players, at:
PeerLend: Peer-to-Peer Lending & P2P Loan Guide
Two more market entrants are apparently ramping up for launch, as well: GlobeFunder & Loanio. The former is in limited testing in a handful of states, the latter in stealth mode, but supposedly scheduled for launch sometime in January ‘08.
In addition to the US for-profit players, there are also are several non-US focused, more “social finance” oriented, services: Kiva.org has seen continued success in lending to third-world entrepreneurs, and eBay has made a recent investment in MicroPlace.com, a social-microlending venture that allows Westerners to invest into individual borrowers in developing nations.
2008-01-10 15:17 Permalinksabre Says :
Thanks for sharing this extra income source. Sound interesting and risky too. Is it legal?
2008-02-01 13:20 PermalinkJon Says :
Yes, it is perfectly legal. The prosper website explains all of the details if you are interested. It is risky, but if you do a good job picking who to lend to, it isn’t too bad. It helps that you get to see credit details, and can view the default rates of people with similar credit.
2008-02-01 20:12 Permalink