Comments on: The Great Divide in P2P Lending: Institutional Demand and the Little Guy

By: writing2reality

writing2reality — Sun, 04 Jan 2015 16:15:57 +0000

Sorry that your state doesn’t allow investing, I think it is shortsighted on their part, but hopefully in the future this is an investment class that you will be able to participate in and add income diversification to your retirement plan. While the research above doesn’t show Prosper in a great light, it has not tempered my long-term belief in this industry and asset class. As you evaluate things in the future, let me know your thoughts and experiences.

Thanks for stopping by Steve.

By: Dividend Gravy

Dividend Gravy — Sun, 04 Jan 2015 15:25:34 +0000

W2R,
Interesting article. Thanks for providing this information. I’ve looked at P2P lending in the past and thought it looked interesting. Unfortunately, my home state seems to frown upon this activity and choices here are limited. The situation you describe makes me less enthusiastic about P2P, so I suppose I won’t worry about it for now. If the laws change here at home, I’ll reevaluate then.

Steve
Dividend Gravy

By: writing2reality

writing2reality — Sun, 04 Jan 2015 14:51:11 +0000

Sounds like you’ve had a pretty successful experience so far, especially given your focus on A-C loans. While you’re account still needs to age to reflect its long-term returns, you’ve already seen a glimpse of the success that can be found in P2P lending. There are certainly risks involved, much like any investment, but I believe these are mostly factored in currently. Given the glut of investor demand, a challenge that these companies need to be aware of is lowering interest rates to attract borrowers, but still maintaining consistency in underwriting to compensate for the risk involved is difficult and a delicate balance must be maintained. If not, any dip in the economy would see a strong response by borrowers, increase defaults and costing folks the high returns people are accustomed to now.

You’re absolutely right, P2P lending is not for everyone. People must evaluate what is important in their financial life and how they want to accomplish their goals. Like yourself, I view P2P as a nice compliment to my other investments, and provides a level of passive income to supplement my desire for financial independence.

Thank you for sharing your thoughts and experiences David, it is much appreciated.

By: writing2reality

writing2reality — Sun, 04 Jan 2015 14:43:00 +0000

Utilizing the secondary market is an easy way to avoid the limitations of the primary market, so I’d imagine you haven’t seen too many issues there. It will be interesting to see how the secondary market changes as Lending Club expands to all states (it will at some point), and institutions are the predominant players. Prosper is much more impacted by institutional demand than Lending Club at this time.

And no, fully institutional, LC will will become just another B2B investment service with offering available only to those with access, high levels of capital, etc. Not all that atypical for financial institutions. Cheaper to service, faster to scale, and more profitable are all pretty easy selling points.

Thanks for sharing your experiences PMU!

By: David Michael

David Michael — Sat, 03 Jan 2015 18:29:51 +0000

Excellent article. Thanks for your research and depth on this timely topic. Bravo!

After a year with Prosper and starting with $10,000, my total is now $15,000 with $1520 made from interest. I averaged about 11.5% return in 2014. Not bad considering this was a learning period and I experimented with different filters. I spend about ten minutes a day for a selection of one or two new loans. Primarily using A,B, and C loan categories, I have over 600 loans with only 4 defaults for 2014. So I feel good about my results in the past year.

In general, I find that P2P Lending is more stable than investing in the stock market where daily noise screams out with daily ups and downs. I am getting returns of 11% also in the market by using high dividend paying stocks but with a great deal more drama thanks to the drop in oil prices (REITS, MLPS, BDCS). Primarily, Prosper or P2P Lending provides a great diversification tool for my retirement account.

And…I agree with your findings. The quality of loans for the individual investor have diminished even in the past year. My goal is to wait until a 12-15% loan is available. It’s obvious that the best loans are being siphoned off by institutional investors. If I drop my range to 10% or more, there are many loans available to match my filters. I look forword to your follow-up article.

(One note to add…P2P is not for everyone, primarily because it is more difficult to cash out in a day as compared to the stock market. More like owning a rental property where it often takes years to receive decent rental income. Otherwise, I totally recommend P2P as another bucket for a mostly passive income source.)

By: Pullingmyselfup

Pullingmyselfup — Sat, 03 Jan 2015 14:15:47 +0000

I don’t fund loans directly as my strategy with Lending Club is to pick up seasoned loans that have 10 payments in them off the secondary market. I haven’t seen a drop in available notes… yet. I have a feeling that it will come though. I understand business is business but LC will lose its charm and place if it goes pure institutional investor. At that point is it really any different than other lenders?

By: writing2reality

writing2reality — Fri, 02 Jan 2015 16:49:19 +0000

Yes, PA is a bit behind in allowing direct investment. Sorry to see that you’ll be ending your experiment, but everyone must invest in a manner that suits them, and no two people are alike.

I agree, I don’t think they are bad at all, as they provide the scale in which opens up the space to greater innovation and progress. Plus it greatly eliminates the going concern risk that was around a few years ago. Any sort of automated investing is the way to go, and the only way to compete in a crowded marketplace.

Thanks for sharing your thoughts!

By: Mom

Mom — Fri, 02 Jan 2015 14:58:34 +0000

I can’t buy new loans through Lending Club any longer (change of residency and lack of desire to use FolioFN), and I think that’s not really a bad thing. I only had $300 in Lending Club as an experiment, and it’s time to let that experiment run it’s course and go back to the stock market where I have more knowledge and a better comfort level.
I don’t think that institutional lenders are all that bad, especially as it helps grow the P2P companies. Each individual lender just needs to be a little bit faster in choosing which loans to select. I think LC offering their automatic investing can help that to some extent for the folks that qualify.

By: writing2reality

writing2reality — Thu, 01 Jan 2015 14:49:52 +0000

Seraph, the shortage is most certainly a result of overallocating loans to institutional investors to the point where their growth has exceeded the growth of Prosper as a whole. Pretty interesting stuff. I’m sure as things stabilize retail investors will start to see an increase in their allocation, however, when and how much remains to be seen.

Have a Happy New Year yourself, and thanks for stopping by.

By: Seraph

Seraph — Thu, 01 Jan 2015 04:37:26 +0000

I noticed the lack of loans on Prosper, but didn’t realize it was due to institutional investors. Though, as I have less than $500 invested in LC and Prosper combined, I admit that I haven’t given this much thought. Nevertheless, it’s an interesting subject. Thanks for bringing it up, and I think I’ll do some digging of my own.

Happy New Year!