Peer to Peer lending


I was wondering if anyone has invested in Lending Tree or Prosper, not as a borrower but as a lender. They publicize returns in the 6-7% range but I’m concerned about the safety of my investment.

I’m also not sure if I’m comfortable with the whole idea of becoming a lender. I realize it’s what banks do to make money but I somehow feel that it’s taking advantage of people who can least afford it. For this reason even more than safety, I’m leaning against it

Just wondering if anyone has given any thought to this type of an investment.


Pete did an almost 4 year experiment and found that it wasn’t worth the trouble. He’s winding his investing down and pulling all his money out.

My plan for P2P lending is to save it for post FI diversification. It’s not a tremendously efficient method with having to pay taxes: unless you use an IRA.


Thanks for the link! I like the tracking he did and agree it doesn’t appear to be worth it.


I’ve been on Prosper for 3 years, with no problems. I’ve earned over 5%. The key is, invest the smallest possible amount in the maximum number of loans. Minimizes your default risk. Here’s my statement of earnings, which includes defaults:


When thinking about the P2P I always draw parallels to the financial crisis 2008.

In 2000 David X Li came up with a mathematical formula, most famous as “the formula that caused the financial crisis 2008”. Prior David X Li´s formula the trade with CDOs was very limited due to the complexity to calculate value & risk. CDO stands for Collateral Debt Obligations and is a structured financial product which is a mix of loans, bonds and mortgages. When Li published the formula, it was received with open arms by investors, it was an elegant and perfect mathematical formula to get a measurement of value & risk of CDOs. The trade with CDOs exploded and 5 years after the formulas was released, the trade with CDOs was worth billions of dollars.

Unfortunately, as it showed later, the formula was incomplete. The formula didn´t take into account the fact that defaults in the real world happens due to changes in the market which affect many at the same time. When house pricing declined in 2007 it did so for a lot of people at the same time resulting in CDO market crashing. One of the banks that had extremely overvalued the CDOs was Lehman brothers which later went bankrupt.

In P2P lending the interest is what you get in return, but foremost a measurement of risk. Just like with Lis formula and CDOs, diversifying across multiple lenders does not take into account risks of market changes which affects multiple borrowers. This risk is real and need to be priced as well as a part if the interest rate. There is no perfect formula for how much but it´s definitely not 0%.

Doing this is especially important now since we have an extremely low interest market which may at some point change to increased interest rates leading to higher cost of debt leading to more defaults and so on.

In Oct 2015 Swedens biggest P2P lender Trustbuddy went bankrupt, this risk will of course never be priced in by the P2P lending company, but it´s also there and it´s real.


I have a tiny amount invested just to play around with it, but what I don’t like the most about it is that it requires other people to be sound with their money, pay on their debts, and withstand a significant financial downturn and still pay their loan back in order for you to make money. Too many variables for me, even across notes only $25 in value.


Thanks for the insight. Experiences seem to be variable but I thinking, like you, it’s just not worth the effort since I was not going to invest that much anyway.


I played around with $250 and I pulled out $234 when all my loans were done or defaulted. I had several default and two of those were A level credit and one of those two the borrower had the highest credit rating. So I basically lost money. I guess there are people that really focus on which lenders they are lending to but as others said it seems to be a lot a work for a lot of reword in my experience


Welcome to banking! This is how banks determine the interest rates that they assign to loans.


Do you know if there are there published stats on default rates?


Here are my results:


I looked into it, but IIRC, it is not legal here in North Carolina. Banks don’t seem to like competition…


I have a handful of loans with Groundfloor (about $2,500 total - $500 in five loans).

I mostly did this to collect a $100 bonus for investing $2,500. I wouldn’t recommend putting your life savings in something like this. They are all 12 month loans with balloon payments at the end. One of my $500 loans was repaid 1/2 a month in. Did the person refinance to a better rate elsewhere? Groundfloor is calling it a “39% return”. Sneaky.

Congratulations! You Just Earned 39.3%

Your money has been working hard for you since you invested in [address removed] on January 6, 2017. This investment of $500.00 earned $10.79 in interest. We have deposited $510.79 into your investor account.

           Expected  Actual

Principal $500.00 $500.00
Term 12 months 0.66 months
Rate of Return 14.5% 39.3%


I don’t know. I never got into really studying up on Lending Club. I picked some loans and sort of just let it ride . I thought of this as fun money.


Take a look at this article

It´s not super fresh but covers a longer time-span and has some data about default rates.

Please note though that the writer states that “We can ignore default rates for 2007 through 2008” which is not completely true imo.


Great article and research. In sum, both lenders seem to average 5% defaults.


Hey All,

Just wanted to see if there are any updates on anyone’s results with investing in peer-to-peer lending. I’m looking for alternatives to stocks and bonds for some of my own investments, and Prosper seems like it might fit the bill.

Much appreciated,



I follow a few rules in deciding where to place my money. My rules are not for everyone and I’m sure someone will be quick to point out I could earn more doing XYZ. I think discipline will beat occasional brilliance and I rather give up a bit of return and save more to hit my goals than worry about losing my money.

First, An investments expected return has to significantly higher that what can than what I can earn on safe money. I don’t mind risk but I have to be compensated for it.

At 6 percent rate of return I’d rather put the money in my own businesses, invest in renewable energy, energy savings, MEC, or even an annuity. My solar PV annualized 7.5 percent, has been risk free and I have the satisfaction of knowing I’m helping the environment.


I used Reddit (r/borrow) for a few months. ROI is huge. You can make 20% in a few weeks. NOTE: Risk is high. Here is my experience with r/borrow.