An Experiment in Peer-to-Peer Lending

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I recently signed up for is a site that facilitates peer-to-peer lending — offering borrowers lower interest rates than credit cards or hard money loans, and offering lenders higher interest rates than traditional CDs or savings accounts.  It’s a win-win, and a cool business model that creates value for everyone involved.

Across a diversified network of personal loans, investors have earned a 10% annualized return (according to their recent data).  Since my ING savings account currently pays just 1.1%, I figured I might as well give it a shot.  Of course past results are not a guarantee of future returns, and unlike ING, there is a small chance my investment could go to zero.

How Investing in Works

As an investor, you can choose between individual loans and automated plans.  For individual loans, you will see the requested loan amount, the interest rate, the rating (similar to credit-rating), and a personal note from the borrower explaining what they intend to do with the money.  Individual loans are perfect for investors looking for specific types of loans — debt consolidation or certain small businesses, for example.

You can invest as little as $25 in each loan, or any amount up to the full value of the loan. loans are capped at a maximum principal balance of $25,000.  Like any investment, diversity is key to minimizing your risk.

Based on historical performance, Prosper also provides investors lots of statistics, including estimated loss rates and rates of return for each loan rating level:

As a rookie, I selected two automated plans: one that will invest in A, B, and C-rated loans, and one that will invest in D and E-rated loans.  Within a few minutes of setting up the plans, I already see several pending investments in my account.  They will become active once the loan reaches 100% funding.  I opted to invest in $25 increments to maximize diversity.

After the loans close, then I play the waiting game.  I’m curious to see how the peer-to-peer loans on perform.  If I end up doing better than 1.1%, which hopefully won’t be too hard, it will be a great victory.  If this initial test investment goes well, I can see myself allocating more funds to loans. Pros and Cons for Investors:


  • Earn better returns than savings or CDs.
  • Invest in real people, not big companies or banks.
  • Customize your investments for risk, return, and personal interest.


  • Not FDIC insured.
  • No guaranteed return.
  • Not as liquid.

I’m looking forward to tracking the results of the little experiment.  The company has had its share of legal battles and other headaches, so it will be interesting to see what happens in the next couple years.  Anybody else had experience (positive or negative) with

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1 thought on “ An Experiment in Peer-to-Peer Lending

  1. Been investing with prosper for the last 2 years. Last year my APR was 10.27%, but that included everything from AA to D loans (using automated plans), so you have to have the stomach to watch some default. The only concern I have is that prosper as a company is not yet profitable, They just got something like another $17m in venture funding. Not sure what happens to the notes I own pieces of if they go out of business. Am trying to look into this.

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