Earn High Returns with Peer Lending

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Back in 2009 I was the guy borrowing from peer lending investors.  Not anymore baby!

Investing in peer loans is paying me about $25/month… and that number grows with every loan I invest in.

Invest in peer lending

Peer lending is just another term for peer to peer lending, social lending, p2p lending, etc.

Now-a-days I’m the guy getting paid to loan money… and it feels really, really good.

One way I invest – and earn high returns – is by using peer lending platforms to loan money to people who are in the same position I used to be.  I enjoy doing this for two main reasons:

  1. I can help them get out of debt.
  2. I can earn high returns on my money.

I usually stay away from loans (a.k.a. notes) being used to finance things, like weddings or automobiles, and stick primarily to debt consolidation loans and sometimes business loans.

How much you earn will depend mostly on the notes you choose, how you choose them, and your use of the secondary market.

How much I earn with peer lending

I currently have nearly $4,000 invested in 90 notes.  I have had one note default and am earning a NAR (net annualized return) of 8.55%.

The average peer lending investor earns approximately 10% on their investment… so I’m a little behind the curve, but I’m learning – and will take a 8.5% return any day.

To date I have earned $212 in total interest… and I’m pulling in about $25 in interest a month, and this number grows monthly as I invest in more notes.

Tips for earning higher returns

Here are a few tips for those who want to start investing with peer lending:

  1. Before you choose loans be sure to pick solid criteria then save the criteria search.  I will elaborate more on this in a future post dedicated wholly to the subject, but for now just understand that you can filter the loans based on criteria like “no defaults in the past 3 years” and “credit scores of 700+”, etc.
  2. Keep an eye on the notes you invest in and resell troubled notes on the secondary market.  Again, I will drill down on specifics later, but just be aware that selling troubled notes on the secondary market is a crucial part of earning higher returns.  Don’t be intimidated by this either because it’s easy peasy, all you basically need to do is pick the loans you want to resell, price them at a discount and click “submit”.
  3. Diversify your notes.  By this I mean to invest in notes of different grades to balance risk and returns.  Peer lending platforms grade the loans based on borrower credit history and allow you to drill into the details and pick loans paying higher returns while still offering less risk – they’re there, you just have to look.

Those are the basics.  Feel free to ask questions in the comments section below.

How you can get started with peer lending

If you like the returns peer lending is delivering and want to get started, there are two companies I recommend in full confidence… Lending Club and Prosper.

Personally, I have more experience investing with Lending Club, but know both companies are sound and proven, so choose Prosper if their platform suits your needs better.

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1 Jon | Free Money Wisdom

Thanks for the info Matt! These are some serious interest rates! I’m still a little leery of lending to individual people. Is it enough to just look at their track record? It doesn’t seem like there is anything holding someone back from defaulting on a loan… I’m almost convinced, but I’m just too paranoid about being wise with God’s money!

2 Matt Jabs

Well, as with any investment there is always risk. To decide whether peer lending suits your risk profile I suggest reading the statistics for both Lending Club and Prosper. Like I mention in the article, I enjoy choosing loans where I’m using the money God blessed me with to help others get out of debt.

3 Jason from SocialCheap.com

I second Matt’s experience with LendingClub… it’s been great so far for me. The only thing to be aware of is that is that your rate will start high and go down around the 9 month-12month timeframe, since a few of the loans you will have invested in will probably have defaulted. (LendingClub actually called me to give me a heads-up about this). However, the overall rate is still high… mine went down from a 12.5% savings rate to about an 11% savings rate. Sure beats the bank 🙂

4 Peter

Looks like we chose to write about the same topic today! I’m currently at about a 10.17% rate of return on my Lending Club portfolio with about 2k or so invested. I have had zero defaults so far.

I think Lending Club is like any other investment in that there is always going to be some risk involved, although you can mitigate that risk to a degree by being careful about what loans you choose to invest in. I’ve started investing in higher grade – higher risk loans and my interest rates have started going up. I’m still being careful in choosing loans for people with higher incomes, and no recent history of defaults. So far it’s working out, but you never know how it’ll play out over the next few years..

5 Louis Lamoureux

A couple of things to help investors earn higher returns.
1) Read the prospectus. There is valuable information in there.
2) Criteria based on gut instincts are not the way to higher returns unless you are really lucky. A little bit of number crunching can go a long way to increasing your returns and reducing your defaults. If you invest on LC or Prosper GO TO LENDSTATS.COM RIGHT NOW. KenL has sliced and diced the data to show which criteria perform better.
For instance. The two biggest factors affecting performance are the NUMBER OF INQUIRIES and LOAN PURPOSE.
3) There is a video on the LC website titled “Earning Higher Returns” or something similar. Watch it.
Herndon, VA

6 Simon Dixon

This is very interesting to see these companies grow. I just posted a blog on how I see the peer to peer industry gradually replacing banking.

7 Mikael Rapaport

It is very interesting to see so many experienced investors in p2p lending. Here is a new player that we have just launched: peerform.com – Like Lending Club and Prosper, Peerform is a p2p lending platform with a very strict admission policy. Borrowers need to have an excellent credit history to pass the registration. Peerform’s strategy is to reduce Investor’s work of selecting borrowers one by one. Although Investors at Peerform still have the option to “Browse Notes” and select loans one by ones, they will most likely create a portfolio using our “Portfolio Builder” by spreading out their investment in ~100 notes, to protect their investments. Peerform sees a p2p lending investment like a bespoke product where investors can chose exactly their level of risk and return.

The management team at Peerform comes from the Investment Banking and Money Managing industries, they are used to dealing with investor’s money and will bring in interesting options to investors to give liquidity and protection to the market. Their target is to optimize the interest rates/origination fees in order to beat the market by showing investors returns above 10%.

Prospective investors can drop their e-mail on Peerform website and will be contacted to start lending to borrowers.

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