Prosper P2P loan portfolio by rating

Prosper P2P loan portfolio by rating

I was asked earlier by a friend why I supported person-to-person lending and other things like it.  He thought that they were just preying on the poor and unlucky.  To a point he’s right, but I prefer to think that folks are making the best choices available to them given their options and knowledge.  Obviously a short term loan, whether a payday loan, a credit card, or person to person lending is an expensive way to get credit or cash, but it may not be the most expensive.  You can consolidate credit card debt through Prosper, and cut your interest rate in half.  Additional education would be great for many of these folks, because an emergency fund is really the cheapest form of short term loan that you can have, and with a quick 10 minute lesson, many people will realize that.

Loan Portfolio by Term

Loan Portfolio by Term

At this point I’ve reached the amount of money in my Prosper portfolio that I’m taking a break from adding additional money, and instead I’ll see how this portfolio does over the next year or so.  Given that it’s been approximately 6 months since I’ve started, and assuming no growth in the number of folks getting loans, I could conceivably get to a portfolio size of around 650 loans, give or take.  So with my current funding level per loan, I could move somewhere around $65,000 to Prosper alone.  Now if you used a different funding amount, say $25, then you could only have about $16k.  A larger amount per loan and you could likely cover almost any amount that you would want to put to peer-to-peer lending.

Loan count after 6 months

Loan count after 6 months

As the title to this article suggests, I do have one late loan at this point, though it is only late in the 15-30 day range.  If over the long run the default rates stays under 1%, I’ll be ecstatic, so I expect that some more of these will eventually go bad on me, but hopefully not more than I’m expecting.  But that is the reason I’d like to wait and see what happens.  I’m a bit concerned what would happen if there was a general downturn in the economy, but I think that on a relative basis this will hold up better than most like investments such as junk bonds.

Loan portfolio income to date

Loan portfolio income to date

To date, I’ve received almost $260 in interest from my loan portfolio.  Given the current size of my portfolio and the average interest rate of my portfolio, I should be on track for income of great than $100 a month from here on out.

Readers, what do you think about holding the investment in P2P stable to see performance for myself, or do you think I should continue to move money in to take advantage of the rates?

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13 Responses to P2P Lending update, me 113, bad loans, 1

  1. jefferson says:

    100 bucks a month in interest is nothing to sneer about.. Good job!

    How bad is the defaulted loan going to hurt, f they don’t pay at all?

    • Karl says:

      $100 per loan. As I mentioned, I’m just pausing to see how things were going. The plan is to eventually to have 400-500 loans, assuming things work out.

  2. Modest Money says:

    I think it’s a pretty smart move to set a maximum investment in something like this and give it some time to see just what kind of long term returns you can expect. You don’t want to get too greedy and expose yourself to extra risk. Since I am going to want to get into some kind of investing in the next few months, I’m going to have to shoot you an e-mail about this stuff.

  3. […] Cult of Money – P2P Lending update, me 113, bad loans, 1 […]

  4. Lou Lamoureux says:

    I would recommend that you drop to $25 per loan until you have 400 or so loans. When you only have 115 loans, a $100 default hurts. I see you’re mostly in ‘A’ ‘B’ and ‘C’ loans, but even those default sometimes. It takes a lot of interest to make back a $100 principal loss.
    Lou

    • Karl says:

      If I were originally planning to have this amount of cash invest and no more, I certainly would, but I plan to have 4-6 times more loans eventually. If I used just $25 it would take forever to get to where I wanted.

  5. Sam says:

    Don’t put more the $ 25.00 per loan

  6. I have to say that just about everything I know about P2P lending I’ve learned from you and other PF bloggers. I agree, a delinquency rate of less than 1% is phenomenal!

  7. A Blinkin says:

    I don’t think it’s preying on the poor at all. You’re giving loans to people that 1. couldn’t get a loan from a bank or 2. would pay higher rates of interest to the bank. Because of your risk, you are receiving a higher rate of interest than the bank would give you.

  8. AverageJoe says:

    I like reading about this line of lending, as it’s one of the few types of investments I’ve never participated in.

    I think I’d treat it like any other asset class (with regard to adding more money). Determine what percentage of your portfolio you’d like in P2P and then stick with that percentage. That way, you stay diversified but still are adding more money into what appears to be a profitable area of investing.

    Hope that helps.

  9. Ray says:

    I’m not sure why you are stopping your loans at this point. You can always continue to watch you loans or better yet open another account and continue to invest.

    The $100 is fine as long as you continue to invest, but you should really look at the higher return loans. I’m talking C, D, E and HR loans. You will find your returns will be much greater even with more defaults.

    Speaking of defaults, you will end up having a loss of 5% to 10% on average over the course of the loans no matter how you look at it for those A, B, C loans. That’s why I recommend you move to C, D, E and HR loans. While you RoL will be higher, it will be offset by the higher returns from the lower rated loans with a higher interest rate.

    I have about 400 loans and am sitting at around 16%. I normally only invest $25 to $50 but mostly $25-$35. I am finding it harder to invest all of my money, so I might raise it up a bit, but I do like to have more diversification.

    Good Luck to you.

  10. I have never heard of this type of investing but sounds like a great side-hustle if you ask me. Sure, it is not technically the most reliable return and there are probably a lot of risks involved, but I think that it’s a great service for both you and those who are hoping to borrow.

  11. Nick says:

    A lot of people have a $25 per loan limit… I haven’t gotten into P2P lending but it’s crazy how this market was nonexistent 10 years ago and now there’s millions of dollars flowing through it. Crazy.

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