Why I Started Lending Money With Prosper And Lending Club.

I am a savings-account kind of guy. I like knowing how much interest my own money is earning, and how much I can depend on each and every month from my accounts. ING has been very good to me over the last couple of years, but lately their interest rates have really been lagging. 3.4% interest? Come on, what happened to the 5.5%? I know, interest rates have been falling steadily lately, but that does not mean that I have to give up those interest payments…enter Prosper and Lending Club. I have started lending small amounts of money through these two peer-to-peer loan companies for 2 major reasons:

1. I like free money. Lending Club will deposit $25 into your account right after you open it and before you even put any deposits in yourself, so it is a free $25 that you can use to lend out to others. And Prosperwill also give you a $25 bonus, but if I remember correctly, you have to wait a bit for it.

2. Interest rates at banks are heading deeper into a hole, and I don’t want to follow them. With Prosper and Lending Club, I get to choose the amount of risk and interest I want to make. Want to try for a 10% return on your money? Go for it! But you better know the risk involved before you do! Both companies provide excellent background information on each borrower, so you can “kinda” get to know who you are lending money to. You get to see their credit history, any defaults they might have had, what they plan on using the loan for, etc.. Also, both lending companies let you set up a portfolio of sorts so you can even out your risk while still striving for higher interest payments.

I love the simplicity of sites like ING and other online banks, but I refuse to keep all my pennies wrapped up in an online money market account making just over 3% when I can lend money directly to other people, basically selecting my own interest rate while determining my level of risk exposure. It’s like being a bank, but without the overhead. Mind you I don’t lend a ton of money, but I have been slowly building up some money in those accounts, and my repayments should be starting shortly. It’s nice to finally have someone send me money rather than me send money to out to the bank!

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Comments (8)

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  1. Deamiter says:

    To be fair, the same conditions that lead to lower return in money markets, will also affect default rates on loans. I too am dabbling in P2P lending, but I expect average default rates to increase as more people get laid off, more businesses go broke (especially small businesses) and as profits, and thus salaries stagnate.

    Just expect default rates to rise in the next couple years. Of course, with P2P lending, you can’t just shift to another investment when the rates become unfavorable.

  2. David says:

    I agree, things could change – and that’s why I am starting small. But it is kind of fun to be able to choose who you lend money to!

  3. Matt says:

    I’ve always liked the idea of prosper but its not available to people outside of the US. As with any investment there are risks but I think they’re worth it. Good luck with your investments!

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  5. cnidog says:

    If you like lending on prosper.com, consider lending on kiva.org as well. Kiva.org is a site that sets up micro finance loans between you and entrepreneurs in developing countries using the same technology as prosper et al. You won’t make any money, but you will be helping an individual in a developing nation get a leg up on the development ladder..

  6. David says:

    I am just getting started on kiva.org, I have talked about it on my other site. Thanks for the reminder!

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