Lending clubs

[Anonymous]

In the other thread about placing $30k, one poster suggested placing funds with Proper or Lending club. Was wondering if anyone here had any experience with them from investment standpoint?

[Anonymous]

Yes. I am the poster who brought it up. The two big ones are lending club and prosper. I have been with prosper for the past 2.5 years and have averaged a 6.5% return on my money in that time. It's a 'small peanuts' part of my portfolio, as I am still feeling my way out on it.

When you sign up as an investor, you move money to your prosper account and from there can review applications for various loans to invest in. It is all anonymous and the info offered is limited. Some folks have very specific criteria they look for in applicants. I do not get into it that deeply. Instead, I invest in the lowest risk applicants to avoid defaults. The goal is to spread your money around as much as possible so if you do have a default it will not hurt you much. For example, if you have $100, you should invest $25 in four notes rather than $100 in one.

I have noticed that institutional investors have moved in lately and crowded out us small peanut folks by investing much larger sums in the higher risk loans (with higher rates of return). This leaves only the lowest risk loans for everyone else (interest rate of about 6-10%) which is fine by me. That's still a great return considering the low risk. Loans are between 3-5 years long, but your investment is paid back gradually (amortized) over that time. Also, you do pay taxes on the earned interest (K-1 on your taxes) but is not difficult to assess using turbotax/tax software.

Another consideration is what state you live in. As a DC resident for instance you can do prosper but not lending club.

I have been happy with it so far and am considering putting in a larger nut sometime soon. If you want more info, look no further than the lend academy website, which contains excellent information on all this: www.lendacademy.com

Good luck!

[Anonymous]

Does anyone else have experience with this? I am interested but I worry about the risk of default over time.

[Anonymous]

Have heard good things about it but I believe it is not allowed in Maryland...certain states don't allow you to participate.