I haven’t made my first loan on Lending Club, but it seems I’m set up and ready to go as soon as the loan is funded. One very distinctly different thing about Lending Club versus Prosper is the lack of “person.” That is, on Prosper you get photos of smiling people (often with cute little kids) to tug at your heart strings and make you want to “invest” in them, even when you shouldn’t.
On one hand, I like that because it makes me feel ok about defaulting every once in a while… I feel like I’ve helped someone out, even if I lost my money. At Lending Club, I’ll probably be a lot more upset if someone defaults… because there it really sets you up to be a bank, not a charity. Which is fine, it’s how P2P lending should be, I’m just not used to it being that way.
So I’ve picked my “notes” — which seem to be set at $25 each (I don’t understand how to put more money into a note yet, or if I need to buy multiple notes at $25) and now I guess I just have to wait for them to be funded for the loan to begin.
Since I’m using “free” money I went for a little more risky loans… a C1 rating and a F3 or something… the rates average to 15% or thereabout. I’ll give these loans a little while before deciding if I want to put any of my tax refund into P2P. I know P2P is going to be big in 2009 and surely Lending Club will profit from it… I’m just not so sure I feel comfortable with the risk, especially as everyone seems to be losing their jobs, houses, and ability to pay off debt.
Have you ever lent money to a friend or relative? In times of economic hardship, more and more often our friends come to us with a request to borrow funds. Or maybe we are at a loss and need a few bucks to get by for the month, and we ask a friends to spot us the dough.
The New York Times reports that it’s best to stop and think before lending money to anyone, even a good friend. The article highlights a professional financial planner who ended up lending her manicurist(!!!) $3000. Her manicurist needed the money to avoid eviction, and tugged on the emotions of a woman who would otherwise advise clients not to lend money to personal acquaintances.
For me, I like to lend money to people in need, but not to my close friends. Instead, I use Prosper’s P2P lending system. At least I can do a credit check on the person before deciding to lend them money, and I can earn a decent amount of interest back in return. (Then again, it looks like it will be a while before I can lend on Prosper due to some legal trouble they’re in.) If I were every to lend money to a close friend, I’d have to think of it as a gift when I part with the funds. If I get it back, all the better.
Q & you A:
What’s the most you’ve ever lent a friend? Did you get that money back, or did it ruin your friendship?
So right now I have 8 active loans on Prosper.com, for $50 each. Up until this month, each borrower has paid on time, which had me starting to believe in the power and potential of PSP lending.
Then, one of my borrowers went late. She’s still less than 15 days late, so it hasn’t even got to a collection agency yet, but I’m a little worried.
The good news is that I made $25 in a Prosper referral and between that and the interest I’m making on the other loans (as long as they don’t default too, knock on wood) means that I’ll end up making back the $50. But that kind of defeats the purpose of investing, if I end up barely back where I started.
Maybe this listing just had too many warning signs. The woman had to relist 3 times in order to get her listing funded. The debt-to-income ratio was way too high for the measly 13% interest rate it got funded at.
well, I’ll remain hopeful that this woman is just having a bad month and she’ll pay me back. But I’ve learned my Prosper lesson – only lend to people who are employed (students are not good investments, even if you want to help them study abroad!) — The people who really should be getting funded on prosper are those who have full time jobs, make more than they spend, and are trying to pay off high-interest credit cards. Then you’re really both helping each other out right now.
I’m rather risk adverse when it comes to my finances, but the idea of person-to-person lending has enough reward behind the risk for me to take some chance on the newly-minted credit market.
My Prosper plan is to handpick one listing per month to fund. I transfer $50 from my paycheck to Prosper and decide on a listing that I think is worthy. Most often I chose folks in the A or AA category (though I recently went as low as C) and I pick people who are trying to get a lower rate on their credit debt or who need smaller amounts of money for important things like house repairs, doctors bills, etc. I try to stay away from business loans.
Here’s an update on how my Prosper accounts are doing (none have defaulted yet, knock on wood.)
Total Account Value: $357.43
Amount Invested: $350
Average Interest Rate: 14.76%
[[6 loans out, $50 each]]
| Loan Title
| Paying off/ Consolidating Credit Cards
| Let me pay you instead
| Termites have destroyed my home, †
| Paying off Adoption Credit Debt
| Help Me Study Abroad ** Relist #2** †
| Emergency Home Repairs – Winter †