Prosper Loan Portfolio - Allocation - Feb

Prosper Loan Portfolio - Allocation between risk rating and term

About 2 months into the person-to-person lending experiment, I’ve now invested in a total of 48 loans.  The number of available loans that have been returned in my search screens have been fairly light the last month, so I didn’t add nearly as many loans as I did in January.  But, I have been remaining patient in order to build the best portfolio of loans that I can, with good returns and hopefully a very limited amount of defaults.  I really am trying to squeeze as much of the risk out as possible, as a single default can wipe out the returns of dozens of loans.  If you can wring a single extra percent of default out of your search, and still have a statistically significant number of loans to base a return on, you can add hundreds of dollars to your returns over the course of several years.

As you can see, my portfolio consists primarily of B rated loans, which return approximately 13.5% before defaults.  About 20% of my portfolio is A rated loans, which return about 8%.  The remainder, besides some cash, are loans rated C, D, and E, which return from 18% to 32%, again before any defaults.  Additionally, you can see that the term of the loans I’ve invested in are mostly 3 year loans, about 65%, with the remainder being 5 year loans.  There are several advantages I see in 5 year loans.  First, the interest rate to me, the investor, is higher.  Second, they likely pose less risk in the short and intermediate term for the borrowers, as the cash flow requirements to service a 5 year loan is less than a 3 year loan at the same principle.  Currently, all my loans made are current, though the first due date of all my loans has not occurred, as I continue to add loans to my portfolio.

Prosper loan portfolio - p2p status

P2P portfolio - current loan status is current for all loans

For background, peer-to-peer  or person-to-person (P2P) lending is what borrows use instead of payday loans, pawn shops, credit unions, or banks that either offer poor terms and rates or won’t offer a loan at all.  Additionally, the rates on P2P loans are usually less than credit cards rates, offering borrowers a clear path to saving money while repaying their debts.  At the same time, investors can earn outsized returns compared to the high-yield bonds and especially compared to savings account, though at much higher risk.

It’s hard to say anything about my returns thus far, as I’ve only received a single payment from most of my loans, though one or two loans have given two payments.  Prosper tells me my return to date is 10.15%, but again, this doesn’t mean much at this point.  None of my loans are seasoned, which is defined as loans 10 months old or more.

Current P2P returns

Current portfolio returns - loans with payments

What I’ve received so far is shown below.  I’ve gotten a total of $75.68 in payments, of which $27.61 represent interest payments.

P2P loan portfolio returns allocations across risk

Total cash returns from loan portfolio - profits baby!

I’m happy with how things are going so far.  I’ve invested almost half of what I’d like to start with in person-to-person lending.  To begin with I’d like to get 100 loans, which would provide enough diversification so that any luck or lack thereof would be removed from the equation.  At the current rate that loans are coming up in my search, I should have a full portfolio around June or July.

At this point, I’m doing much better than the first $3.50 I received with P2P lending, and I’m working well toward the goals I set up in my Prosper Lending Intro.

Readers, what are your experiences with P2P lending?  What about P2P borrowing, have any of you paid off high interest credit cards from person-to-person loan proceeds?

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15 Responses to P2P – No defaulted loans, and profit baby!

  1. Money Infant says:

    Sounds to me as if your P2P lending experiment is off to a great start. I considered doing this a few years ago, but was living in Pennsylvania at the time and so was not eligible to participate. Do you know if that’s still the case? I suppose I could just head over there and find out for myself haha.

    • Karl says:

      I’m fairly happy with how things are going so far, but we’ll see how I feel once some of these loans start defaulting. And some will, that’s just how the world of lending works. But hopefully the search criteria I have will keep that to a minimum.

      I went and checked, and from the Prosper website:
      Prosper is currently available only to lenders who reside in the following states: Alaska, California, Colorado, Delaware, District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Louisiana, Maine, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, New York, Oregon, Rhode Island, South Carolina, South Dakota, Utah, Virginia, Washington, Wisconsin and Wyoming.

    • I invested in Prosper when it first started. I funded about five loans and got all of my money back. My return was just under 12%. It would have been higher, but a few people paid the loan off early.

      I was happy with how it worked. But, much like you, I live in PA and am no longer allowed to invest. It’s a shame too, because I would definitely still be doing it if I could!

  2. My husband looked into P2P lending and really wanted to do it, but we’re not eligible in our state. I think there’s some sort of secondary market but we didn’t get that far in our investigation.

    Philosophically I’m not sure I want to lend directly to anyone. I’m just not sure if we’d be helping these people by giving them a lower rate than credit cards or taking advantage of them. A thin line, you know? How do you feel about that?

    • Karl says:

      I’ve heard that from some other people, that they can buy the loans on the secondary offering through the note trading platform, but can’t get the loan through the initial offering. Sounds silly to me, but that’s the type of problem you run into lending directly to people in 50 different jurisdictions. Sounds like there may be an opportunity for someone to get loans, record all the information from the offering, and offer it for sale on the secondary market with a small mark-up…

  3. WorkSaveLive says:

    I had an okay experience with Prosper when the site first got started. Now I think it’s a much better opportunity with the information they provide.

    My experience was about 5-6 years ago and I was way too aggressive with my portfolio…and I was also lending money that I couldn’t really afford to lose (yeah…stupid).

    Once we get out of debt it is definitely something I’m going to reconsider. I look forward to seeing how your returns do over time!

    • Karl says:

      WSL, I think that the platform prior to 2009 had some issues with their ranking system and the statistics for default not holding up. My understanding is that this has been resolved in the post-2009 prosper lending world, but we can really only know for sure going forward.

  4. I’ve looked into P2P lending and would be really interested in in investing in it, but I don’t qualify in my state.

  5. Nick says:

    I’ve also looked into it but have tried to keep it simple with my investment portfolio so I’ve stayed away. I also discount the return because I thought the interest would be ordinary income, so it would be taxed at a much higher rate. I’ve thought about playing around with a few bucks though to check it out a bit.

    • Karl says:

      There is the problem with ordinary income, yes. Though I think I just saw an ad recently for an IRA that was hosted at one of the lending sites. Tax deferral of high-yield interest would certainly be something I should look into.

  6. […] Cult of Money presents his gains from Prosper Lending Program. […]

  7. I have a few small loans with Lending Club that have done well over the past few years. I have been thinking about adding more money into this stream of income!

  8. […] Cult of Money – P2P No Defaulted Loans and Profit Baby […]

  9. YFS says:

    I swear I must have been the only person losing money on P2P. my 1k experiment turned out to be crap and return a measly .2% over the last 3 years. I must of had bad timing.

    • Karl says:

      You may very well have just been unlucky. Assuming a $25 investment minimum, $1,000 only gets you 40 loans, and it only take a bit of bad luck to cause a loss on a portfolio that size. Heck, if just 4 loans go bad, at an average of 10%, you’re at best breakeven.

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