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The WSJ recently wrote about P2P lending in the article “Doing Loans with Web Neighbors.” The article covers tips for both borrowers and lenders, but they are the basics such as diversify loans and factor in defaults and fees. The article also lists a great story of a borrower who saved a significant amount of money on her monthly payments and raised her credit score.

A year ago, Nicole Newberry was in a financial hole so deep that she had trouble making the minimum payments on her credit cards. Then a co-worker told her about Prosper.com, a peer-to-peer lending Web site… Within 10 days of posting on Prosper.com, Ms. Newberry received a $9,000 loan at 19% annual interest — enough to pay off all her credit cards, which at that time carried 25% to 27% interest rates. As a result, her monthly payment dropped to $330, from $800 before consolidation. Her credit score, once a subprime 580, is now 680 and steadily rising.”

With that kind of credit score increase, I would recommend that Ms. Newberry consider taking out a second loan and use it to pay off the first one. She could drop her monthly payment even further. Prosper only recently announced the option of taking out second loans that would make this strategy possible.

The WSJ article lists the big players in the P2P lending market including:

• Prosper founded in February 2006 with $90.5 million in loans and 440,000 members. (Rate Ladder says $100 million+.)
• LendingClub.com started in May 2006 for Facebook and has since opened up has 20,000 participants and more than $1 million in loans.
• Lending Circle (now virginmoneyus.com) started in May 2007 exclusively for lending among friends and family has brokered more than $200 million in loans.

The article is a good introduction to the P2P lending marketplace, but introduces no revelations. If you are new to researching P2P lending, it is a good article to read. Otherwise, you can skip it…

According to Club Lending there are several types of risks in lending using Lending Club services. The risks listed are different from the traditional financial investment risks which are foundational enough to deserve to be addressed in a separate post. Below (in the quote sections) is the risk information provided by Lending Club:

Participating in any financial transaction carries elements of risk, and online person-to-person lending is no exception. We strive to create an easy, safe and private environment for people to bypass the banks and borrow or lend money at better rates. Below, we address the main types of risks associated with online financial transactions in general, and explain the measures we have taken to reduce these risks.

I agree with that statement because every investment carries general economic condition risk and inflation risk. However, other investments, such as money market savings or US government bonds, do not carry the same risk as participating in a P2P lending network. P2P lending lenders must carry Read the rest of this entry »

Prosper offers some great information to read and watch before starting to lend. For example, there is a basic tutorial on lending along with several other lending tutorials on the tutorials page.

There are also videos available Read the rest of this entry »

I have read several articles on Prosper lending and other P2P lending sites that have made me interested in boosting my returns in an alternative to investing in the stock market. I have decided to try a few loans with Prosper.com and am currently working on my strategy. I have been earning terrible returns on my cash for years now in a money market account so it will not hurt to wait a few days while I formulate my lending strategy. Read the rest of this entry »