With interest rates being so low, investors are on the hunt for options that offer better returns. I’ve been exploring peer-to-peer lending with Prosper.com as a potential solution, especially now that my CDs yielding over 4% are maturing. Prosper.com has been on my radar for years, and it seems like a promising avenue for generating higher returns with a more hands-off investment approach.
Prosper started in San Francisco and has been around since the early days of P2P lending in 2005. The platform offers an alternative to traditional banking by connecting borrowers directly with investors through the internet, which can potentially lower borrowing costs and increase investment returns. However, it wasn’t until the Securities and Exchange Commission stepped in to regulate the industry, requiring more stringent borrower screenings, that I felt more confident about the security of investing in P2P lending.
Now, with over a decade of operational experience and no reported total losses for investors with at least 100 funded loans since 2009, Prosper advertises an appealing average return rate of about 10%. This rate significantly exceeds the current 10-year yield, making it an attractive investment proposition.
Investing in P2P lending allows for greater control over your investment choices. You can select individual borrowers to invest in, which lets you manage your risk and tailor your portfolio according to your comfort level with the borrower’s creditworthiness. If a borrower defaults, Prosper will engage a collection agency to recover the funds, adding an extra layer of security for your investment.
Here are the benefits I’ve noted for both lenders and borrowers:
For Lenders:
– Higher potential returns, adjusted for risk.
– Personal choice in selecting borrowers, which can enhance investment matching with your risk profile.
– Repeated borrowing by the same individual on Prosper requires a good repayment history, theoretically reducing default risks over time.
– Prosper is regulated by the SEC, adding a layer of formal oversight.
For Borrowers:
– Access to funds without traditional bank visits or dealing with loan sharks.
– A user-friendly online platform that guides you through the application process.
– Opportunity to explain personal financial challenges directly to potential investors, which is a significant advantage over the rigid criteria of banks.
Risks to Consider:
– The possibility of losing money if not diversified enough.
– The chance of Prosper going out of business, although they have backup plans in place with a third-party loan servicing company and Wells Fargo acting as an Indenture Trustee to protect investors.
My Goals with Prosper:
– To diversify my income streams and build sustainable passive income.
– Explore higher yield alternatives to savings and CDs in a persistently low interest rate environment.
– Increase my passive income significantly through strategic investments in P2P loans.
In addition to financial returns, using platforms like Prosper allows investors to contribute directly to individuals who may struggle to obtain financing through traditional means. This aspect of P2P lending appeals to those who value personal impact alongside financial gain.
Overall, the combination of higher potential returns, the ability to select who you lend to, and the added security measures make P2P lending with Prosper a compelling option for diversifying investment portfolios and achieving financial goals in the current economic climate.
