Peer-to-peer Lending services Catch-All

What is the consensus of the hive mind, on peer-to-peer lending services?

http://www.prosper.com & https://www.lendingclub.com seem to be the two most popular in the States.

I've heard about them over the last few years and, they intrigue me.

A personal favorite financial dude (he retired at like 35) Mr. Money Mustache did a write-up on Lending Club. The lengthy comments section is worth reading, as there is much sober discussion of both it and Prosper within.

I think that long term, with regulatory probes into some of the more Loan Shark-esque pay day and micro loan lenders, the prospect of these services as an investment is on shaky ground. On that note you could have said the same thing about google, Progressive, or Apple at many times. And that stems from issues on the lending side of things. In addition to general problems with our needed heightened scrutiny on all lending-credit cards, mortgages, loans, auto financing, etc. you have some of the pay day lenders committing crimes. Frankly, in this economy I have a strong BS sense when I see rates of return in the double digits. It might be once bitten, twice shy. But if Morgan Stanley is having troubles offering that, I am wondering why a smaller start up is capable of that. There is also an inherent skepticism given the haphazard way web companies seem to approach economics and finances.

On the borrowing side of things. Credit has really been drying up, which has hampered growth in many areas. If you need to invest in your existing business, or if you have a cracking idea, the banks are not there anymore. The federal funds are not there anymore for low interest loans for new businesses, or grants for new not for profit services (this one bugs me). Read those lending terms carefully. If it is a choice between your graphic designers getting that new tablet, and closing shop then the choice is clear. But I am not sure if this type of loan to repave your driveway, or to buy a new car is the most prudent choice.

Minarchist wrote:

A personal favorite financial dude (he retired at like 35) Mr. Money Mustache did a write-up on Lending Club. The lengthy comments section is worth reading, as there is much sober discussion of both it and Prosper within.

I both thank and curse you for showing me that thread just before I went to work. I wasted most of my day reading it and its forums. I have come to the conclusion that, I need to knock out my remaining school loans and start working towards financial independence before I will be lending money like that.

Most of the people that commented on it used it to supplement an already healthy investment portfolio. I was looking to do it because I had a lot of money (to me) saved up from my work situation this year.

I still like the idea of those types of sites and, will look back into when I'm in a place to more about it. The one flag that was thrown up for me in the comments was the tax filing on the income generated by it. That never even crossed my mind and, probably never would have.

I'm considering changing the thread's title to something along the lines of finance advice or something. Do we have a thread like that?

Ranger Rick wrote:

I used prosper a long time ago, but they ended up not being allowed to do what they do for NC residents so I was only allowed to finish out my existing loans and not start new ones. I had one guy default on me, my annualized return for 2006-2008 was about 4%.

I must ask then. In the event of a default, what are your remedies under the contract? This is a quirk of American law. Lenders are certainly national (except for small banks and credit unions), but state and local law governs mortgages, auto loans, repossessions, etc.

Does the site provide you any resources to pursue the lendee, even in a foreign state?

I used prosper a long time ago, but they ended up not being allowed to do what they do for NC residents so I was only allowed to finish out my existing loans and not start new ones. I had one guy default on me, my annualized return for 2006-2008 was about 4%.

Still, I liked the idea of helping bootstrap people who may have bad credit but cleaned up their act, and you can choose how much risk you want to take on. Overall I'd say it was a pretty positive experience.

KingGorilla wrote:

I must ask then. In the event of a default, what are your remedies under the contract? This is a quirk of American law. Lenders are certainly national (except for small banks and credit unions), but state and local law governs mortgages, auto loans, repossessions, etc.

Does the site provide you any resources to pursue the lendee, even in a foreign state?

Yeah, actually, part of the service is picking a collection agency to deal with defaults, when you "invest" in a loan. I never had to do anything personally, Prosper just passed it on to them.

Did you see a recovery on, or at least a mitigation for the losses on the default then?

Ranger Rick wrote:
KingGorilla wrote:

I must ask then. In the event of a default, what are your remedies under the contract? This is a quirk of American law. Lenders are certainly national (except for small banks and credit unions), but state and local law governs mortgages, auto loans, repossessions, etc.

Does the site provide you any resources to pursue the lendee, even in a foreign state?

Yeah, actually, part of the service is picking a collection agency to deal with defaults, when you "invest" in a loan. I never had to do anything personally, Prosper just passed it on to them.

From that article that Minarchist posted about Lending Club; I gather that they do all of the collections agency stuff for you. You are still out the money if the person doesn't pay. To lessen the blow from that, they recommend spreading your money around lots of notes.

KingGorilla wrote:

Did you see a recovery on, or at least a mitigation for the losses on the default then?

Yes, but I think that's why my annualized return was about 4% instead of more like 5...

I just found out about Lending Club after stumbling on the Mustache Man's site.

It looks like it has been a few months since the last post here. Any thoughts on LendingClub now?

One thing I discovered is Lending Club is not available to investors in all states (including at present, mine).

It seems to have worked ok for him so far. I like the idea of it as long as you can manage the risk and trust their company.

Can I hijack this thread to talk about loans in general?

Wife and I are trying to buy a lot to build the dream home on... I make twice what the lot is worth in a year, have no current house payments (they are in my wife's name) and have good but not excellent credit (working on it). Went to the bank thay told me "no problem", then 3 days later... bam... phone call telling me they couldn't even consider me as they could not get enough equity. The lot itself is in the middle of a new development which has been so successful it is tripling in size next year. Apparently lot loans are very difficult to get and that is common knowledge... the asshole in the bank doesn't care to tell me this because his job is to get the application in.

Now I'm stuck with a hard look on my credit and being gunshy trying another bank. Any advice? We've already put money down on the lot (~1.25%) to keep it reserved for us, so cut and run is only after we have failed everything else.

I don't understand who buys these things, I would think I am literally their target client. I didn't try cosigning with my wife as we thought the house debt being in her name would make it more difficult.

Found an interesting conversation with some google fu...

I hate stuff that is complicated for no good reason.

I don't mind the hijack at all but you might get more responses in the general questions you wanted answered thread since this one stays pretty quiet.

In terms of providing some useful information while I haven't gone through this myself (the closest thing being looking at properties for my business) some quick internet searching helped make sense why it would be harder.
With vacant land there is less collateral for the bank if you walk away and since the lot buyer would be less at risk than say getting kicked out of your home or place of business, these loans are much riskier for the bank. Therefore they may be looking for significantly higher down payments (20 to even 50%).

Construction loans where the plan is to build a house on it may be more up your alley but it looks like they will have different terms than a regular buy the house on the lot loan we are all generally more familiar with.

Good luck!