Since Lending Club is ending Notes, I am now moving over to Prosper for my P2P Loans investing.
On December 31, 2020, Lending Club will end it’s Notes Platform.
What is Lending Club and Prosper?
On one side, they provide loans. Just like the loan, you would get from a bank.
On the other side, these loans are funded by investors. Unlike the banks, these investors are anyone willing to invest as little as $25. Which means you can invest just like a bank does. This is called P2P or Peer to Peer Lending.
How does it work?
Let’s say someone needed a $10,000 loan for home upgrades and go to either of these platforms for a loan. You as the investor can now provide funding for this loan and the borrower will pay you interest.
But 10,000 is a lot of money and it can be very risky putting all that money in one investment that can default.
So they provide a way to diversify by purchasing $25 Notes. This way you only invest $25 in the $10,000 loan. You then purchase other Notes in other loans. If one loan defaults or has problems, then it’s only a small part of your investment.
How do you know which loans to choose?
There is always the Auto-invest feature. You simply turn it on and they will pick the notes for you.
If you’re a little more adventurous you can pick them out yourself. They are graded by risk. I did this for a few years. Although, it was time-consuming having to research every $25 note.
From Lending Club to Prosper
I still have active notes in Lending Club. Essentially they won’t offer any new notes, but the current ones still have to go through. This means I still have loans that will take months to years to mature. The loan lengths are 36 and 60 months.
In the meantime, I am transferring all my earnings from Lending Club to Prosper.
Lending Club Experience
Overall I like this type of investment. It’s not like investing in stocks at all. It is very cash liquid. After investing in each note the borrower will make monthly payments. So for every month, they will pay you a portion of the loan with interest. Eventually, you will have all of your money back plus interest. Multiply this among many notes and you will get quite a monthly sum. If you choose to auto-invest, every time you reach $25 it will purchase another note.
I think this is a great way to diversify my investments. The returns are much better than any savings account or CD.
I have had several loans default. Which, is just part of the process. The earnings will exceed the losses and usually, you won’t lose all of the money in the loan. Most of the time they have paid a portion of the loan before defaulting.
Looking back I am glad I decided to invest with Lending Club. I look forward to my new experience with Prosper.