The Growth Of Peer-To-Peer Lending

If you have any money sitting in cash today, you’re well aware of the ridiculously low interest rates being applied to your balances.  It is not uncommon to see .1% or even .01%, resulting in just pennies earned each month.  There’s no way that you could grow your savings or investments at such low rates, so what should you do with your cash?

Even though the S & P and Dow Jones indices have been reaching all-time highs every couple of days this year, investors are still weary of the stock market. Who could blame them after recent events like the financial crisis, the flash crash, the Facebook IPO debacle and other high-frequency trading spurred events?

Fixed income products are a terrible choice as well. Rates are practically at zero, so the only place they can go is up. When rates move upwards, the prices will fall causing your holdings to lose value. If you hold the product until maturity, you will lose out on higher rates and possibly better returns.

If savings rates are low, you’re scared of the stock market and fixed income products are positioned to decline in value, what are some other alternatives?  A very popular choice for the last few years has been peer-to-peer lending with companies such as Prosper or LendingClub. Today’s infographic takes a look at several facts and key advantages that P2P lending has held over more traditional investments.

peer to peer lending infographic

This infographic has been prepared by LendingClub, but the numbers are very similar to that of Prosper.  Each company has seen incredible growth because of the wonderful returns that most investors are experiencing.

I have personally invested a small amount into Prosper and I’ve been very happy with the results.  Next week, I will greatly increase my investment with both companies by lending $40,000 total.  I will disclose my loan choices and periodically post updates on how the loan portfolio is performing.

READERS:  Have you tried peer-to-peer lending?  Which company have you decided to invest with and how have your experiences been?

Comments

  1. says

    I invested in a few loans with Prosper back in the day. I was a little nervous at first, so I invested a small amount. All of the loans I invested in were paid back in full. I really enjoyed it and would still be investing through the site, but they don’t follow the law of my state and as a result I can no longer invest.
    moneysma recently posted…Are Hybrid Cars Worth The Price?My Profile

    • says

      The first year, I only invested $100 due to fear as well. I wasn’t so much worried about people paying me back, I was more worried about the lenders. Who’s to say that they wouldn’t go out of business and take my investment with them? Neither FDIC nor SIPC insurance cover these lenders. They have been around for several years and I expect the business model to become even more profitable as it develops.

    • says

      I completely agree Michael. There’s no reason to pay a middle man when you can connect directly with the other party. Both P2P lenders I mentioned charged a very low fee.

    • says

      It’s worth a try for sure. However, to increase your chances of seeing a positive return, LendingClub suggests that you invest in 800+ notes. At $25 each, that would equal $20,000. I would still give it a try with a lower amount though. For the first year, I only invested $1000.

    • says

      I invested a small amount over a year ago and it has worked out very well. Also, splitting the investment between the two companies will help to diversify the risk (hopefully).

      I hoped to have the $40k invested already, but the funds don’t clear until 8/8.

  2. says

    I’ve been very interested in P2P since looking into it this spring. A couple of friends planned to request a loan to start a food truck business, but I haven’t heard yet how they fared. My husband didn’t find this as enticing as I did so we haven’t taken the plunge, but as a former commercial lender I really love the idea.
    Betsy / CollegeMom recently posted…How to find the best deals on AmazonMy Profile

    • says

      I would recommend taking another look Betsy. The rate that I’ve received has been much better than anything else this year (except for stocks).

  3. says

    I like your style of writing. You break it down nicely. Keep these informative posts coming! They are a great resource for us logo designers.

Trackbacks

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

CommentLuv badge