Any advice with Peer to Peer Lending?

[SportGuy]

I have come across a few sites that mention peer to peer lending and I was wondering if these are real or if they are scams? Is it all on good faith or is there collateral involved?

I wouldn't be offering tens of thousands of dollars but some of the interest rates are 5%+ and it might be good passive income if its legitimate. If anyone knows about these sites please share comments.

[cooliemae]

I've been dabbling with lendingclub over the past year. The loans are unsecured and you best be ready to lose some money, however with any investment it really boils down to how much risk you want to incur and how much you diversify.

I have my investments split 20%(A) - 40%(B) - 20%(C) - 20%(D and worse). I also keep my investments in individual loans small as to spread the risk out even further.

I found it funny that i had my first delinquency a month ago and you would have thought it would have been one of my D and worse investments. You'd be wrong though, it was one of my A grade investments, just goes to show you can't predict who'll fail to pay. Good news is that lending club will attempt to contact and eventually send it to collections on your behalf.

My net return before the delinquency was about 14%, but of course the delinquency will make that drop some.

[sblatner]

I've had a lending club account for a few years. I'm making over 6% on my money even with delinquencies. The first time a loan went delinquent, I felt like someone kicked me in the stomach and I got mad but then realized I was still making really good money so it is okay. I try to invest in A and B loans. It seems to work well.

[SportGuy]

I've had a lending club account for a few years. I'm making over 6% on my money even with delinquencies. The first time a loan went delinquent, I felt like someone kicked me in the stomach and I got mad but then realized I was still making really good money so it is okay. I try to invest in A and B loans. It seems to work well.

Can you tell me more about these loan types? What is A and what is B?

Also if this is not a secure loan and if people can be delinquent, what protection does a lender have if someone just accepts all the money and never makes a single payment in return?

[Goldy]

I have a LC account and thought it was the bees knees when I was "making" 17% interest. After a couple defaults I"m down to 7% but all in all its not that bad. Funny thing is that most of my defaults have come from the A and B score loans.

[cooliemae]

Can you tell me more about these loan types? What is A and what is B?

The loans are categorized by risk level. So 'A' type loans are, in theory, the least likely to default. The idea being that when you get to loans that are 'G' you understand there is a larger risk of default associated with that loan. The categories are then assigned an interest rate based on the quality of the loan. The better the quality...the lower the interest rate.

Also if this is not a secure loan and if people can be delinquent, what protection does a lender have if someone just accepts all the money and never makes a single payment in return?

There is no protection, so lender beware! Of course, as I said you can mitigate some of the risk by spreading out your total investment over many loans. That way if one defaults, the other loans keep your adjusted interest rate relatively high.

[SportGuy]

How are the loan types assigned a letter grade of risk? Is there a credit score associated?
If a person defaults on their P2P loan, do they have any consequences at all? Do they get a hit to their credit report? I'm confused a bit and wondering why anyone pays back these loans if there is no consequences for those who default.

[cooliemae]

There is income verification and you can see a summary of their credit reports. Of course the individual who defaults on their loan will see a hit to their credit rating. I don't know if they are 'banned' from lending club or not, but there are consequences.

I would suggest you head over to the site and read how they operate versus having it explained secondhand.

[SportGuy]

There is income verification and you can see a summary of their credit reports. Of course the individual who defaults on their loan will see a hit to their credit rating. I don't know if they are 'banned' from lending club or not, but there are consequences.

I would suggest you head over to the site and read how they operate versus having it explained secondhand.

Is there one or more than one reliable peer to peer lending site you all here might recommend?

[UnknownXV]

In a way I could consider it educated gambling. Interest rates are higher, but so is the odd of a default. I'm not sure if they have any statistics on how often people do, you should try to find out to construct a better investment model if you want to take it seriously.

It's not a scam though.

[Petunia 100]

At one time, I was considering plunking about 10k into Lending Club. Then I learned that the notes are technically the property of Lending Club, not of the investors. In the event Lending Club declared bankruptcy, investors would be unsecured creditors and would have to stand in line with all other unsecured creditors. This is not a risk which can be diversified away. I decided it was a risk I did not wish to take.

[frugal saver]

I joined Lending Club last summer, based on another thread at this site. I think it's a great way to make money, with the following caveats:

1. I only lend $25 per loan, so even if they bail, I can only lose $25.
2. I'm thinking that my total investment should be less than 5% (or even less than that) of my total investments. Right now it's only 1%.

That being said, I'm earning 9.81% right now (knock on wood) and it's a nice easy way to make money. I just placed $25 in a loan today for a plumber apprentice that wants to buy his own used plumber van.

Would I join the site and plunk down $5000? No way. But I had no problem joining with $50 to see how it would go.

[Rick46]

P2p

I have been looking into peer to peer lending and would like to start, problem is I live in Maryland and I can't join lending club or prosper. Can anyone point me in the direction of a reputable company that I can join?

[Mantory]

They are not scams in the most cases, I used it successfuly

[sv2007]

I've always wondered about loan sharking ever since watching godfather. Seems neat to go to somebody and demand payment or break something : )

As for legal lending, there's a bunch of laws and more recently more laws concerning short-term high-interest lending, to cap the annual interest rate and origination fees. These peer-to-peer lending feels like even more risky (law-wise) than uber and airbnb.