Lesson 1: An Introduction to Investing in Peer to Peer Loans

Recently, Peer 2 peer lending has been in the headlines. In this video we are going to provide practical answers and directions on how to invest in peer 2 peer loans.  In this video, we we will cover what a peer 2 peer loan is, and what type of returns you can expect.

This is video 1 of a 6 video p2p Lending Series.  Click here for the other free videos.

Open a Peer 2 Peer Lending Account and get started with as little as $25

 Open a Peer 2 Peer Lending Account and get started with as little as $25

What are Peer 2 Peer Loans?

When you invest in a Peer 2 Peer loan, you’re loaning money to a person, not a company. The loan could be for any number of purposes. One of the most popular is to refinance credit card debt. The loan is not collateralized, meaning that should the person you loan money to choose to not pay, collecting the money will be very difficult.

 

How much return should you expect to earn investing in peer 2 peer loans?

With peer 2 peer loans, there is a big difference between the  loan’s interest rate and the expected return. Why? A large number of the loans are not fully paid back by borrowers.  The expected return is interest minus the losses due to loans not being paid back in full.

Here are the peer 2 peer lending returns for all the loans issued by the two large peer to peer companies for the last three years.

Lending Club Prosper
2010 6.1% 9.5%
2011 6.8% 7.3%
2012 (est) 9.1% 7.7%

(data from Lendstats.com)

As you can see, the returns from peer 2 peer lending have been between 6.1% and 9.5%. In 2012, the returns have been on the higher side because the loans are younger and therfore have had fewer defaults. Peer 2 peer lending returns will become smaller over time. A reasonable expectation is for a rate of return around 6 – 7%. Many people do report earning much more.

This lesson is part of our Free Guide to Investing in Peer to Peer Loans.  To continue to the next lesson go here.

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