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P2P Lending 2016 Update

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It’s been a while since I gave an update on my P2P lending account at Prosper. That’s because I’m not as enamored with it anymore. I started investing in P2P lending with Prosper.com in 2011 with $1,000. Eventually, I increased my investment to $10,000 and it’s been a generally positive experience over the last 5 years. In fact, P2P lending performed much better than my stock market investments in 2015. Here are my annualized returns over the last 5 years.

P2P Lending Performance

Purchase Period Total Invested* Average Note Age* Annualized Returns* Lender Promotion
Total Returns*
Overall $30,126.60  596 Days 7.77% 0.14% 7.90%
2015 $5,216.69 186 Days 9.69% 0.00% 9.69%
2014 $5,705.00 509 Days 9.93% 0.00% 9.93%
2013 $6,110.71 747 Days 11.58% 0.00% 11.58%
2012 $12,019.20 736 Days 5.30% 0.25% 5.54%
2011 $1,075.00 619 Days 5.79% 1.05% 6.85%


P2P Lending 2016 UpdateUsually the ROI decreases as the notes get older due to defaults. The 2014 and 2015 ROI will drop a little over time. The S&P 500 index gained just 1.4% in 2015 so P2P was much better than stock during that period. In previous years, the stock market performed better than the P2P lending account, though. So why am I not excited with P2P lending anymore?

  1. Idle cash – I set up automatic investing at Prosper and invest whenever a loan meets my criteria. My ROI improved noticeably since I started doing this in 2013. However, the automated screening isn’t able to invest all the money in my account. By the beginning of 2015, I had about $3,000 sitting idle in my account. Institution investors have moved into P2P lending and they are picking up a lot of the good notes. From what I understand, you can screen the loans manually at 9 am and you will be able to pick up more loans that way. I can’t do this because I have to drop RB40Jr off at school. So the 9.69% ROI in 2015 is inflated because I had a bunch of idle cash sitting around. Prosper calculates the ROI based on money invested.
  2. Borrower income verification – I feel like P2P lending companies are not doing enough to screen the borrowers. While they check the FICO scores of all borrowers, they don’t verify every borrower’s income. This does not seem to affect the default rate, though. The default rate of the income verified loans are higher than those that weren’t verified.
  3. Illiquid – I know you can sell notes on the secondary market, but I haven’t tried it yet. For me, the investments are not very liquid. If I need to withdraw some money, it would take a while to get it out of Prosper.
  4. Consumer recession would raise default rate – The last few years were pretty good years for the US consumers. The unemployment rate has been decreasing and most borrowers can pay back their loans. However, credit card default rates always increase when people lose their jobs. I’m afraid the default rate would go through the roof upon a recession.
  5. Uncollateralized loan – The P2P loans are unsecure. This is basically the same as credit card loans. You can borrow money based on just your credit history. P2P lenders are taking on the same risk as the banks, but we don’t get the same ROI. Credit card rates are usually higher than P2P lending rate. I feel P2P lenders should get better ROI for the level of risk we’re taking.

These are the reasons why I’m drawing down on my P2P lending account. I will check in periodically and if I see idle money, I’ll withdraw it to my checking account. I want to build my cash position this year and invest when the stock market is down. I also want to try investing more at Kickfurther.


Kickfurther is similar to P2P lending, but investors lend to small businesses instead of individual borrowers. The big difference here is the money will be used to finance inventory. The investors own the inventory and we can vote to liquidate the inventory if the business can’t sell it. Usually, I try to pick loans that already have buyers lined up. You can find out more and receive $5 to start through this link. Currently, I only have $600 invested and haven’t made much money yet. I’ll invest more when I have more cash available.

Kickfurther has some of the same problems as P2P lending. Investors have to manually go through each loan and figure out which business to lend to. It’s pretty easy to lend at this time because it’s not widely known yet. If institution lenders get in on this, then I expect it will be much more difficult to find good loans. Also, it is not possible to diversify with Kickfurther because there are only a small number of borrowers. At least it is more interesting to go through business notes than consumer notes. Some products are pretty cool.

P2P Lending

My biggest problem with P2P lending is the idle cash. Actually, there are services that can invest money for you now. There are robo-investing and fund management services which could be very helpful. I will give these companies a chance to go through a recession before I let them manage my P2P lending account. Who knows what the return is going to look like when defaults become more common.

In any case, I wouldn’t put more than 2% of our net worth into P2P lending. It is still relatively new and I would like to see how they do over the next 5 years or so. I still trust the stock market more even with the recent volatility. Particularly, I don’t think stock market losses are real until we sell. If we can hold on through the tough years, our investments will recover. With P2P lending, once a borrower defaults, that investment is gone. I’m not sure if that’s the right way to look at it.

Here are the links to Prosper and Lending Club if you’re interested in P2P lending.

Prosper – Open an investing account at Prosper.com

Lending Club – Open an investing account at Lending Club

Have you tried P2P lending? Are you happy with how your investment is doing?

More from my Prosper account

Cash Summary
Total deposits: $10,000.00
Total withdrawals: $3,860.00
Cash used to purchase notes: $31,091.60
Payments received: + $24,872.45
Miscellaneous activity: + $80.01
Cash balance: = $0.86


Performance Summary
Payments received: $24,872.45
Principal paid off: $18,729.25
Payments in excess of principal: = $6,143.20
Principal charge-offs: $3,138.40
Gain/loss to date: = $3,004.81

Image by davebarger

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{ 33 comments… add one }

  • Mr. Tako @ Mr. Tako Escapes February 8, 2016, 12:24 am

    Good update on your P2P lending situation Joe. 7.9% is nothing to sneeze at, but it does seem like a lot of risk given our current economic situation. I can see why you concluded a drawdown would be a good idea. Any stock with a PE of 12 would have a earnings yield higher than 7.9%….along with growth prospects. Something to think about.

    Kickfurther looks interesting too, I’ve never heard of it. I’ll check it out.

    • retirebyforty February 8, 2016, 9:21 am

      Kickfuther is neat. I like the idea and I hope they can execute over the long run. 7.9% is pretty good considering how stock did in 2015.

  • Michael @ Financially Alert February 8, 2016, 12:50 am

    Kickfurther sounds interesting, although in practice I wonder how feasible it is to reclaim inventory from a company that defaults.

    I’ve been using Lending Club for a little over 2 years how and hovering at 9.3% with about $11k invested. I started off reviewing each note which was fun for awhile, but eventually switched onto their automated note purchase program.

    I’m considering moving some IRA funds into an account here at some point. So far I still like the P2P concept, but like you a bit wary based on how new it is. I also worry that as it has become more mainstream, the quality of the notes or rates may not be as favorable for the investors as competition increases. I guess time will tell.

    • retirebyforty February 8, 2016, 9:23 am

      9.3% is really good. It will probably drop a little as more notes default. Reviewing each note was fun for a few weeks. It became a shore very quickly. I heard that consolidation loan is the best bet with P2P lending.

  • Res @ Happylater.com February 8, 2016, 3:15 am

    P2p companies have a vested interest in putting up loans and thus it is more profitable for them to have the legally required checks to be made rather than a through check. I agree with the idea that a stock is down but the potential profit or loss is released once you sell. The disadvantageous of stocks is the robots trading which iIMHO do not allow for clear price discovery.

    • retirebyforty February 8, 2016, 9:25 am

      Another advantage of stock is that you don’t have to pay tax until you sell. That allow for more compounding than P2P lending where you have to pay tax every year.

  • John C @ Action Economics February 8, 2016, 3:42 am

    Wow, just shy of 8% is pretty darn good, and it is a good diversification from stocks and real estate. I might need to look into kickfurther. I like the idea of lending to small businesses more than individuals. It’s certainly much safer if the lending is to fulfill inventory for purchase orders they have in hand. I wonder if purchase orders are required for borrowers to get funding?

    • retirebyforty February 8, 2016, 9:28 am

      It is a good diversification, but it’s just getting too difficult to keep money invested. I probably will transfer my investment to a management company at some point. I’ll let the next recession cull out a few companies. I’d hate to pay management fee if we get negative returns. As for Kickfurther, purchase orders are not required to get funding. Borrowers will put that info in the loan info. Some businesses just rely on historical sales numbers.

  • Justin February 8, 2016, 6:45 am

    The numbers look great but I think your hesitance is well-founded. It seems like a good place to start making decent returns if you have a little cash to invest. But your experience illustrates how hard it is to make the investment scale. If it’s hard to keep more than $10,000 invested, I imagine keeping $100,000 or more invested would be nearly impossible.

    As with many opportunities, outsized returns attract attention and money, and the outsized returns are soon arbitraged away.

    My reason for avoiding P2P lending is the amount of effort and expertise required assuming $10k is the most you can keep invested at any one time. I could spend 2 minutes and drop $10k into the Vanguard High Yield fund, for example, and pick up a 6.7% yield right now. That’s not quite as high as your P2P returns but probably a similar risk profile (defaults are significant).

    • retirebyforty February 8, 2016, 9:31 am

      I think it’s easier to keep money invested if you’re more active. I just don’t have the time or inclination to sift through the loans manually. Vanguard high yield fund sounds good. That’s a very good alternative and much easier to deal with.

  • Mike H. February 8, 2016, 7:19 am

    The more I read, the more I’m shying away from P2P lending. For one thing, it doesn’t seem scale-able: there seems to be an upper limit on the amount you can prudently invest in this, and from your experience that amount is less than $10,000. Second, there’s no “discount” periods like there are for stocks and bonds: if the economy is doing well, fewer people will need personal loans, and if the economy is doing poorly, default rate goes up. Third, it neither leverages your assets nor provides any kind of risk-reducing diversification.

    That’s just where I’m at right now. We’ll see if I change my tune in the future, but for the time being all of my extra money is going into dividend stocks. Investment properties are next on the list. P2P is not on the list at all.

    • retirebyforty February 8, 2016, 9:33 am

      I kept my loans at around $50 per note. I could increase it to $500 and invest in more loans, but then I’d be less diversified. That would be my priority as well. P2P lending is just a tiny part of our net worth.

  • David Michael February 8, 2016, 8:46 am

    Joe, thanks for the update on Prosper. Given that my savings account returns less than 1%, your 7-8% is not a bad return. However, I feel that you are giving a misleading picture of P2P Lending, going on fear rather than reality. I have been in Prosper for three years now and I am averaging 10.97% by spending about 15 minutes twice a day (with nearly $18,000 invested). I have been able to improve my filter selection by trial and error so that my defaults have decreased with time.

    I believe that P2P has a very important place in today’s investment world…for diversification.
    My highest paying dividend stocks (REITS, BDCs, etc) are paying around 10% as well but with much more volatility. I have never lost any money from Prosper (monthly or annual basis) meaning, despite the defaults (40 out of 820 loans for less than 5% paper loss) my fund has increased every month. I cannot say that as compared to stocks which are like yo-yos. If we have a recession which is likely, I suspect the market will crater another 20-30%. I doubt that will happen to P2P. We’ll see. Fortunately, I have a slug of IBonds that keep yielding 4.5% for 20 more years at the present interest rates so we are covered from a disaster. I plan to invest in P2P until we have 1000 loans and slowly take them out over ten years when I retire again at age 80.

    By the way, thanks for your blog as you gave me the original ideas for investing in Prosper. I, too, had my reservations, so invested a few thousand until I understood the process. Now I feel comfortable with Prosper and it’s working as planned.

    • Aaron Smykowski February 8, 2016, 9:21 am

      Appreciate your personal view on this. I think it would be prudent to give this a try as well. Is there a reason you chose Prosper versus other sites? Any advice that you would be willing to share to something trying this out for the first time?

      • David Michael February 9, 2016, 10:37 am

        I chose Prosper because it was the only one available for Oregonians. Either Lending Club or Prosper should work fine for you. The key to P2P is to have at least 200 loans at $25 each to get your feet wet ($5000). Theoretically, no one has lost money with this minimal diversification. Peter Renton has an outstanding website and blog regarding P2P. He has everything there, including a video, to help the learning process. The key is to understand the filters so you make intelligent choices of the loans offered. Not perfect but a welcome addition to balance out the ups and downs of the stock market, dividends or not. Good luck!

        • retirebyforty February 9, 2016, 10:49 am

          FYI, Lending Club is now available in Oregon. I think Peter is now running (or working at) a P2P investment firm.

    • retirebyforty February 8, 2016, 9:36 am

      That’s great! I’m very happy for you. Like anything, some people are better at it than others. You need to put the time in if you want to get better at it. 11% is really good. I will stay invested to see how we do during a recession. Hopefully, we won’t lose more than 10%. We’ll see.

  • Jim @ Route To Retire February 8, 2016, 9:12 am

    I would love to try out P2P lending just to get the hang of how it works… and hopefully make some money in the process! However, it’s not legal yet in my state, so I guess I’ll have to wait until that changes for the time being. 🙁

    — Jim

    • retirebyforty February 8, 2016, 9:37 am

      Check both Lending club and Prosper. I think they expanded quite a bit over the last few years. They might be in your state now. 🙂

  • Aaron Smykowski February 8, 2016, 9:18 am

    Thanks for the nice summary Joe. I’m intrigued by Kickfurther and it looks pretty legitimate from a couple reviews on Reddit / web. Like any small business there are certainly risks. I think I’ll throw $100 at it to test the waters and see what the experience is like. The returns are quite nice and some of the return periods are quite short which is also very nice. So, even with some percentage of investments only paying back partially I think this one could be a solid way to get some gains. It’s essentially becoming your own personal capital investment firm.

  • Christine @ The (mostly) Simple Life February 8, 2016, 9:28 am

    Thanks for the info! That’s not a bad interest rate, but I don’t think we’ll give it a try until we have extra money outside of max contributions for retirement and such, which we’re still working on. It’ll be interesting to see how it goes over the next few years for sure.

  • middle class revolution February 8, 2016, 10:09 am

    I am enjoying P2P lending but I’ve only been doing this for about 6 months (at most) and still like reviewing loans. I also don’t have that much money invested so it’s fun money. I imagine it would get tiresome if you have $10,000 or more in this account. I did not know it would be taxed each year so that was a bit of a surprise!

    • retirebyforty February 8, 2016, 4:10 pm

      I remember tax as being complicated for P2P lending. It was a chore to fill out the tax form. I need to sit down and do some calculation, but I think paying tax every year cut into the ROI quite a bit.

  • Cyntia February 9, 2016, 7:26 am

    This is great tip. in this moment Stock Market is bear and it would be like that for some time P2P investing opportunity seems like good idea. I was thinking for some time that some of my portfolio allocate over Prosper. This Hawaii trip seems interesting catch. Thanks for sharing

  • Teri February 9, 2016, 10:50 am

    You are doing much better on Prosper than I did. I am currently at -57.08% return, mostly because of defaults. Lately I have gotten 2.42% return on what I had already invested before deciding to invest elsewhere. I only invested in A and AA loans, my B loans were a loss of 37.33%. Most of what people pay on their loans goes to Prosper. I get .01 interest along with principle and Prosper gets .03. I don’t like them.

    Also, my FICO score is over 850 and when I attempted to get a loan it started at 15%.

    Hope your positive experience continues.

    • retirebyforty February 9, 2016, 11:44 am

      Oh wow, sorry to hear that. Can you share why your return is so low?
      How many loans did you have?

  • Mrs. SimplyFinanciallyFree February 11, 2016, 5:59 am

    I only recently started investing in Lending Club but am only doing so to test the waters and see what it is like. I started last July with $250 and just recently added another $225. I know, very small numbers but it is what I was comfortable with for now.

    I break up my investments into $25 amounts per loan to really spread out my risk and have been only looking a A and B grade loans. So far my annualized return is 7.49% but I know this will likely change as I am just starting out. I am not sure how much more I will invest but this will never be a large part of my assets.

    • retirebyforty February 11, 2016, 9:34 am

      7.49% is a little low. It’s bound to decrease a little bit as more loans default. You probably need more diversification – more loans. Good luck!

  • Stan February 14, 2016, 12:22 pm

    I haven’t used Prosper, but Lending Club has been good to me. They have an automated investment feature that you can set a good filter for and they will find the loans and invest for you within a day or two of the cash becoming available. My cash from loan payments has not gone ideal for more than 3 days. I personally like the idea of being invested in 10000 people at $25 more than 10 companies at $2500 (as an example). Much better diversification. My rate has be holding steady around 8% over the last 3 years (45% B, 30% C, 20% D 5% E)

    • retirebyforty February 15, 2016, 8:28 am

      I might have to check out Lending Club. I think they are bigger than Prosper and it might be easier to invest. Thanks for the info.

      • Thomas S April 22, 2016, 10:56 am

        LendingClub seems easier, more intuitive and it’s faster (for me anyways).
        LendingClub lets you sell your notes, current and late on their secondary market.

  • Thomas S April 22, 2016, 10:57 am

    I have been in both LendingClub and Prosper for about 3 years. I feel LendingClub is easier to work with, on both their main website and secondary market website.
    Prosper is a bit slower, and Lending Club lets you sell late notes.
    I’m currently at 10.49% for LendingClub and 10.01% for Prosper since inception. I have about $16,000.
    I just recently started using LendingRobot. It’s easy to use, but i haven’t used it long enough to judge if it increased my returns. It does make it easier to manage my late notes, since i schedule them to sell once a week. I’m hoping LendingRobot will add an option to reschedule selling of notes automatically instead of having to renew each category every 5 days manually.

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