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Does Peer To Peer Lending Make Sense as Investment Vehicle?

Let me start with this: from the perspective of the typical visitor of this site peer-to-peer lending is super conservative. On the other hand being conservative is not always a bad thing - it may help you diversify your investment portfolio and protect yourself against risks.

So, let's have a look at a few of the most popular peer-to-peer lending platform from the lender's perspective and see if this investment vehicle makes any sense.

Lending Club Booth

Prosper

Prosper is the site that got the most media coverage in the last few years. Before you start getting excited have in mind that this site is available only to investors with address in USA. Assuming you have one, here are Prosper's main characteristics:

  • Relatively good number of listings - at the time of writing this there were 27 listings with good rating available.
  • Decent yield - typically more than 10% per year. Currently the best ROI available is for a loan with 16.95% yield.
  • Relatively good security as Prosper do good work in background checking the borrowers.

Looking at the marketplace performance however you'll see that estimated return is 11% at best. Add to this the service fees and the risk that you may one of these who won't see their full investment back.

Lending Club

Lending Club is similar to Prosper - available only to US investors. Here are his top points:

  • Projected returns - 5.11% - 9.29%
  • Average loan size is about $13,000 but you can participate with just a part of the loan.
  • The site doesn't let visitors browse the opportunities so we have to rely on the stats to understand if there is enough activity.

WikiLoan

WikiLoan is a bit different - it lets borrowers borrow loans through social networks. But guess what, it is also US only. Advantages:

  • A lot of loans available. Currently I see about 170 open loans.
  • Good interest rates sometimes up to 30%.
  • Good search engine letting you narrow to search to loans you are interested in funding.

This site is the better of the three but still US-only.

Apparently there is no good peer-to-peer platform for international funding. There are plenty of places like Kiva where you are either donating or lending with no returns. But no place for investors from the globe who want to make returns.

As a conclusion I think peer to peer lending has some potential for diversification. Investment returns from 15% to 30% or so aren't bad and the risk is relatively low. It's nothing too hot of course, especially when some investors recently made 1,000% ROI for six month investing in crypto-currencies. But the more opportunities we have, the better.


Published at Nov, 29 '13 , Read 5117 times.



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