My experience with Lending Club and Prosper

In connection with blogging at Prosper Lending Review, I’ve been involved in p2p lending for about 2 years. Many of the early lenders on Prosper lost quite a bit of money, by lending to high risk borrowers. In an effort to learn from their mistakes I’ve been very conservative and only invested in the borrowers in the highest credit grades.

My net annualized ROI (using LC’s method of calculation) is 7.38% – not quite as good as yours but still very respectable. The average return on Lending Club is 9.05% according to a recent LC-funded Javelin Report. In the next week or two Lending Club is expected to release a new tool that makes it easier to calculate and compare your ROI.

On Prosper, my return is around 9-10% depending on how you calculate it. I’ve been lucky and haven’t had a single borrower default on Prosper or Lending Club (yet). Of course my portfolios are rather small. Lending Club only accepts borrowers with a credit score about 660 so even the worst borrowers are still decent.

Prosper has been closed for about six months while they are working legal things out with the SEC. They just opened to borrowers in all 50 states and lenders in California under a new structure.

You wrote about diversification using LendingMatch. The biggest challenge most lenders have with diversification is they don’t lend enough in order to have a diversified portfolio. I fall into that category. If one of my Prosper loans defaults, for example, it represents 8% of my portfolio ($50/$600). My average loan age, right now, is almost a year so if a borrower defaulted now I’d at least have a year of good payments, but you can see how one bad loan can have a huge negative effect on a small portfolio. It is easier to diversify on Lending Club since the minimum loan size is only $25.