Peer2Peer Lending / Investing

SALLY597

Has anyone in MM either taken out a p2p loan (ie Prosper) or invested in such a loan program and what kind of good and/or bad experiences have you had? While not in position as an investor just yet, we are looking to fund our savings enough to be in position in 3-5 years. My DH and I are open to some amount of risk for higher returns but not at the risk of being completely insane with our hard-earned money. Naturally looking at the websites would make you think you're crazy not to invest but ... anyone with real life experience as lender or borrower??? Thanks in advance!

hoffse

I haven't done it because unfortunately it's not legal in my state (double-check your state).  However, my parents lend through websites like this pretty regularly.  They only invest money they can afford to lose, and they only do small amounts across a wide number of loans to diversify.  So far, they have made decent money doing it overall.  I believe they have a handful of loans that went bad, but  they are definitely net positive.  I'm pretty sure they've also written off the bad debts, but it's been awhile since I've talked to them about it.

They've been doing it for several years and plan to continue doing it.  They are approaching retirement age.  They can afford to be a bit riskier than others their age because they can afford to live off of their state pensions, but they also aren't inclined to do anything too crazy, you know?  

Honestly I wish my state allowed this.  If it did, H and I would probably participate.  I live in Alabama, though, so my state representatives tend to view these things with skepticism and/or outrage due to the potential for moral failing.  I'm pretty sure most of them can't define "usury," although I believe that was one of the words tossed around when this first came up.  Our representatives aren't the brightest crayons in the box.   The reality is that micro-lending has been pretty successful world-wide.  I think there was actually a Nobel prize given out to the person who came up with the idea as a way to combat poverty.  It's not just helped investors, it's helped people who have difficulty accessing other capital for whatever reason.

jtmh2012

I've looked into this several times, but never actually jumped in.

From what I've read, to fully diversify you have to drop $25/loan across like 200 loans which is like $5000. A little more than I care to invest just to try it out.

I also started looking into how do I handle the tax side of this. Seems to be a lot of "here's how I do it, but I'm not sure if it is the right way".

short+sassy

hoffse said:

I haven't done it because unfortunately it's not legal in my state (double-check your state).  However, my parents lend through websites like this pretty regularly.  They only invest money they can afford to lose, and they only do small amounts across a wide number of loans to diversify.  So far, they have made decent money doing it overall.  I believe they have a handful of loans that went bad, but  they are definitely net positive.  I'm pretty sure they've also written off the bad debts, but it's been awhile since I've talked to them about it.

They've been doing it for several years and plan to continue doing it.  They are approaching retirement age.  They can afford to be a bit riskier than others their age because they can afford to live off of their state pensions, but they also aren't inclined to do anything too crazy, you know?  

Honestly I wish my state allowed this.  If it did, H and I would probably participate.  I live in Alabama, though, so my state representatives tend to view these things with skepticism and/or outrage due to the potential for moral failing.  I'm pretty sure most of them can't define "usury," although I believe that was one of the words tossed around when this first came up.  Our representatives aren't the brightest crayons in the box.   The reality is that micro-lending has been pretty successful world-wide.  I think there was actually a Nobel prize given out to the person who came up with the idea as a way to combat poverty.  It's not just helped investors, it's helped people who have difficulty accessing other capital for whatever reason.

LMAO on this!  How many times have said something like this about NOLA?  Louisiana is one of the few states that doesn't allow wine or beer to be shipped to residential addresses, yet the bars in NOLA never close.  We are also one of the few states that don't allow buying tokens at some of those online game sites...ie paying 50 cents to enter a Solitaire tournament...but have dozens of casinos throughout the state, plus video poker in a lot of bars/restaurants.

It sounds like AL is confusing P2P with those terrible "payday loan" places that need to be more intensely regulated.  And I've also read about how microlending has drastically improved the quality of life in some areas of the world.

I had a friend who was a borrower for (I think?) Lending Tree.  She said it was a fantastic experience and was very impressed with the way the site ran things.  It allowed her to consolidate some of her bills at a lower interest rate.  I know she paid her payment on time every month, until the loan was satisfied.

She also told me the website itself is fairly stringent on who they will allow to request borrowing.  I think she had to submit paycheck stubs to the website (not the person(s) lending her the money) and I know the website pulled her credit score and it had be at a certain level.  Potential lenders were informed of her credit score, though no other details on her report (for security reasons).     

SALLY597

Thank you for the opinions and experiences! It just scares me to think of defaults but surely that is a "cost of doing business" that would balance out between various investments and over time. I guess like with gambling, don't gamble with anything that you can't afford to lose. Sadly I have family and friends that could use our financial assistance just as much as strangers but there's no faster way to lose closeness with people you know than when you put money in the mix.