Just found out that I can earn annual returns of 6-12% by investing in p2p lending platforms like lendingclub and prosper. Way more than the measly 1.3% I get from my savings account. Has anyone invested in p2p loans? Would you recommend it?
To get that much means you are lending to high risk people. Enjoy.
Avg income of a borrower on prosper is 89k, avg credit score is 710; not as risky as one would think.
Plus, you can spread your investment to lots of loans. So if you invest $1k, itâll get split across 20-40 different borrowers, (size of note being $50-$25), so your investment is diversified.
I have had $12k in a lending club IRA account for two years. My actual annualized return to date: 4.45%. Originally I thought I would put all my IRA money there but with those returns I'm just going to leave it be and invest elsewhere. Cons: 1. Your money gets locked in for the duration of the loans, you aren't getting it out whenever you want, it'll take years to unwind. 2. In a non registered account preparing your tax return will be absolutely brutal since you will have to report on hundreds of micro loans. Which is why I'm in with an IRA 3. It's unclear how well protected you are if lending club or prosper goes bankrupt. You "own notes" rather than a direct interest in the underlying loans and while the companies claim to have protections in place they aren't truly segregated and the loans could possibly be targeted by creditors in a bankruptcy of the platform 4. With LC there is an annual fee if you have less than 10k in an IRA account. I have 12k to avoid that fee. Don't go in with less.
1 - you can actually sell on the Folio trading platform, thatâs what I did. Google âSacramento methodâ. I ended up taking an overall hit of ~4% to portfolio value to sell, over a 1.5 month period, constantly winding down notes. People mostly only buy at a discount 2 - in a taxable account it wasnât bad, you just get a 1099 with total interest 3 - I agree itâll be horribly messy if that happens. And since LC does all the servicing good luck chasing down 100+ creditors on your own monthly and getting paid
Yes, but, first only Lending Club users Folio, Prosper shut it down, and Lending Club could as well. Second, most people report taking a haircut when they liquidate. Then if you have your money in an IRA you'll get charged a fee by SDIRA. Which means you want to liquidate it all and pay the fee once, but that means incurring cash drag. Third, that method may not work at all in a crisis where many people lose confidence in the platform all at once. So just go in expecting it will take years to get out.
Be warned: The returns have gotten much worse than the 6-12% blogged about several years ago. At a medium risk level the return is typically 3-5%. They have some scatter plots on their site for returns. Look closely Itâs also horribly illiquid and tax inefficient. They also have some optimistic expectations for repayment, and often times the âprojected valueâ is way higher than what actually ends up happening. Did it for 2 years and pulled out, the average return was about 2% total, then trying to sell cost another 4% in fees and having to price down to sell, my final return was -2% or -1% annually. And all this for something WAY riskier and illiquid than corporate junk bonds. IMO itâs just not a good source of returns now. It is a little less correlated of an asset but that doesnât make up for it enough to me. To sell, you need to list notes on the trading platform, and slowly price them down until the market takes it up, Itâs horribly painful and you have to constantly re list notes that go into payment. I tried to exit gracefully over 1.5 months and STILL ended up behind. What people are willing to pay for your more on the trading platform is always worse than LCâs âexpectedâ value.
Good info thx
Good info, thanks everyone! I always tempted to invest in these p2p, especially home loans, now just realized stock market in current economy is actually less risky and has way higher return.
âstock market in current economy is actually less risky and has way higher return.â Until it doesnât...
Did that, decided that itâs not worth it. With the equity market roaring up those 5% returns donât look that good. Itâs hard to get out of it too.
Can you elaborate on equity market? What do you mean, stock market?
Yeah, equity market = stock market. I think stocks will return around 10% next year, although one needs to be smarter about it because the risks of a crash are rising. Lending club returned 7% for me, but itâs hard to get out, because you need to sell your notes at a discount.
Just as an FYI folks, the returns mirror the dip in the federal funds rate. Banks are throwing money at the more credit worthy and even people who do property speculation have moved to platforms like SoFi and Upstart that serve a niche audience with greater credit worthiness potential. I would like to see this model revived though. Prosper has so much potential as a Lending and Investment platform. Recently it just looks tired.
Upstart looks better than LC and prosper, will check it out, thanks
Have been using LC for over 4 years. Used to get 9-11% the first year, now I get 6%. Had 40-50k at some point, took out some money and keeping 17k now.
You can make more than that in stocks, and way waaaay more in crypto
Why is p2p lending.
You invest money in other peopleâs personal loans, they pay you back w interest.
...or sometimes they don't