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.
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.
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.
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?