A couple years ago, I started loaning money to complete strangers via Lending Club and Prosper. You can read about Year One here. $25 was the most I lent to any of the 30 people. I spread it around. I mean, I diversified my portfolio. Ah yes, that sounds much more pompous.
After one year, my returns were 7.30% and 8.85% respectively. Pretty sweet. A year later, those returns have dropped to 6.89% and 5.35% for the two year span. What the, what?
Prosper dropped 3.5%. Why? Turns out I got the shiv from one of those who borrowed from me. My financial advisor Donny Osmond says one bad apple don’t spoil the whole bunch, girl. First of all Don, stop calling me girl. Secondly, one bad apple does quite a number on the bushel. This was kind of a surprise because I chose to lend only to people who had the highest credit rankings and were deemed lowest risk to default on the loans. Oh well. Prosper has sent this to collections after four months of non-payment. If the borrower settles, I will get some of my money back. I’m still way up!
Having skin in the game, as I do in this case playing banker, I get a better understanding of what it feels like being in lenders’ shoes. Of the 20 loans I have out at Prosper, 10 are still current, 9 have paid them off in full, and 1 has defaulted.
Lending Club dropped less than half a percentage point for a couple reasons. The biggest is that 3 of the 10 people I lent money to, paid off their loans early 11 months ago. One of them was paying me 12.62%!! I’ll miss him. His departure alone has dropped my average rate of return. Service fees also weigh more heavily the longer a note exists.
Are you more inclined to borrow than lend? You can do that too. It’s anonymous for all parties. Use Lending Club and Prosper to borrow money from regular people at a rate cheaper than your high interest credit card or a personal bank loan.