Do you have any experience with P2P lending?

[LakeTravis]

I've been looking at a couple of P2P sites like Prosper and wondering if anyone has any experience with this concept?

From an investment point of view, it appears to be a rather simple way to pick your return (from 6% to 35%) and associated risk (from AA to Hell No).

[FIREd]

I have tried LendingClub and made about 9.8% annualized with it. I am dwindling down my positions, however, because it is too much work. For one thing, the notes are callable anytime and quite a few people pay their loans back early. So you will find yourself constantly looking for new notes to invest in and that takes a lot of time if you research them properly. Plus I found it hard to find loans that met my pretty strict selection criteria. Also, no matter how highly rated the notes are, the threat of default is quite real. That's simply because even people with the best credit rating are often one job loss away from default. That single point of failure means that borrowers on LendingClub would probably be rated pretty poorly in the bond world - even for the best rated borrowers on P2P websites. Personally, I consider P2P notes junk bonds.

[ratto]

The keyword is diversification, i.e. minimize your exposure to each note in case it defaults. The tradeoff is that you have to spend time to scrutinize each loan as already pointed out by FIREd. If you have $10k to put in, that will be about 400 notes with no more than $25 each.

I would treat P2P as an experiment in a small scale which could provide some supplemental income. My money will be used by experiments in grand scale conducted by the fed and economists which may or may not yield any return anyway . So what could be worse than that as long as I don't get carried away by P2P.

One borrower prepaid his loan off in a lump sum and I truly feel happy for him even though his credit history plot is going down. So one lesson I learned from this is that don't take single indicator too literally and seriously since there are so much other related indicators as well, maybe even more powerful. If one guy wants to borrow at 16.00%+ for new car purchase or buying equipments for new business/hires, I probably wouldn't lend my money. Another terrific example would be wedding expenses. I don't think I have any appetite for it either, whole wedding or just the cake only.