Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
8 Stock Market Indicators in 1: Here's the Message of the Panic/Euphoria Model - 19th Apr 21
Gold - You Can Win a Battle, but Still Lose the War - 19th Apr 21
Will Interest Rates Rally Further Push Gold Price Down? - 19th Apr 21
Gold Fireworks Doubt the Official Inflation Story - 19th Apr 21
YuanPay Team Discuss The Process Of Crypto Diversification - 19th Apr 21
Central Banks May Ramp Up Gold Buying - 18th Apr 21
How to Get Rid of Driveway Weeds With Just WATER! 6 Months later NO Weeds, Ultimate Killer! - 18th Apr 21
State of the European Markets - DAX, FTSE, CAC, AEX, SMI, IBEX 35, S&P/MIB, Euro Stoxx 50, RTS - 18th Apr 21
Einvestment Fund: What You Need To Know About Investments - 18th Apr 21
Google Alphabet (GOOG) AI Deep Mind Stock Trend Analysis - 17th Apr 21
Stocks and Bonds Inflationary Slingshot - 17th Apr 21
Best Smartphone Selfie Stick Tripod Review by ATUMTEK Works with Samsung Galaxy and Iphone - 17th Apr 21
How to Give Budgie's First Bath | Easy Budgie Bathing and Water Training with Lettuce - 17th Apr 21
Record-breaking Decrease in New Passenger Vehicle Sale in Europe - 17th Apr 21
US Stocks Climb A “Wall Of Worry” To New Highs - 16th Apr 21
Gold’s Singular Role - 16th Apr 21
See what Anatomy of a Bursting Market Bubble looks like - 16th Apr 21
Many Stock Market Sectors Are Primed For Another Breakout Rally – Are You? - 16th Apr 21
What Skyrocketing US Home Prices Say About Inflation - 16th Apr 21
Still a Bullish Fever in Stocks? - 16th Apr 21
Trying to Buy Coinbase Stock on IPO Day - Institutional Investors Freeze out Retail Investors - 15th Apr 21
Stocks or Gold – Which Is in the Catbird Seat? - 15th Apr 21
Time For A Stock Market Melt-Up - 15th Apr 21
Stocks Bull Market Progression Now Shows Base Metal Strength - 15th Apr 21
AI Tech Stocks Buy Ratings, Levels and Valuations - 14th Apr 21
Easy 10% to 15% Overclock for 5600x, 5900x, 5950x Using AMD Ryzen Master Precision Boost Overdrive - 14th Apr 21
The Current Cannabis Sector Rally Is Pointing To Another Breakout - 14th Apr 21
U.S. Dollar Junk Bond Market The Easiest Money in History - 14th Apr 21
The SPY Is Nearing Resistance @ $410… What Is Next? - 14th Apr 21
The Curious Stock Market Staircase Rally - 14th Apr 21
Stocks are Heating Up - 14th Apr 21
Two Methods in Calculating For R&D Tax Credits - 14th Apr 21
Stock Market Minor Correction Due - 13th Apr 21
How to Feed Budgies Cucumbers - Best Vegetables Feeding for the First Time, Parakeet Care UK - 13th Apr 21
Biggest Inflation Threat in 40 Years Looms over Markets - 13th Apr 21
How to Get Rich with the Pareto Distribution - Tesco Example - 13th Apr 21
Litecoin and Bitcoin-Which Is Better? - 13th Apr 21
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

The 3 Best P2P Lending Platforms For Investors In 2017—Detailed Analysis

Companies / Investing 2017 Sep 15, 2017 - 12:51 PM GMT

By: John_Mauldin

Companies

BY STEPHEN MCBRIDE : Peer-to-peer lending (P2P) is a new method of debt financing that allows people to borrow and lend money without a financial institution. Harnessing technology and big data, P2P platforms connect borrowers to investors faster and cheaper than any bank.

P2P lending has grown rapidly in recent years and is a new source of fixed income for investors (download our new special report on investing in P2P loans for more). Compared to stock markets, P2P investments have less volatility and a low correlation. They also offer higher returns than conventional sources of yield.

With interest rates at all-time lows since 2008 and many historically “safe” investments like government bonds offering measly returns, investing in P2P loans in 2017 is a no-brainer.


Here, I take an in-depth look at the three best P2P lending platforms for investors, including their default rates, interest rates, and other important metrics.

Lending Club

Founded in 2007, Lending Club is the world’s largest peer-to-peer lending platform with over $26 billion in loan issuance. It offers both consumer and small- and medium-sized enterprise (SME) loans over fixed periods of 36 or 60 months.

Source: Lending Club

Lending Club has grown exponentially and currently has a 45% market share. It raised over $900 million from its IPO in 2014, but its share price has since fallen 77%.

In 2016, the company was embroiled in a scandal surrounding founder Renaud Laplanche. He was forced to resign after an internal investigation found improprieties in the company’s lending process, including the altering of millions of dollars’ worth of loans.

Although the event damaged the reputation of Lending Club and the industry, the company is well capitalized. The company prospectus states that in the event of bankruptcy, a backup system will come online and function as the intermediary.

Lending Club operates on a notary business model, meaning it acts as an intermediary between borrowers and investors. Once a loan has been funded, the money is released to the borrower by a partner bank.

Lending Club then issues a note to the investor that is essentially a security. Lending Club and Prosper (reviewed below) both use Utah-based WebBank. Lending Club offers loans from $1,000 to $40,000 for individuals and from $15,000 to $300,000 for businesses.

The next charts show the average interest rate charged to borrowers across all credit grades for 36- and 60-month loans.

Source: Lending Club

We can see from the variance in default rates that Lending Club’s grading system works as it should…

Source: Lending Club

… with corresponding increases in returns.

Source: Lending Club

Lending Club charges investors a fee equal to 1% of the amount of borrower payments received within 15 days of the due date. The borrower pays an origination fee that ranges from 1% to 5%, depending on the grade. Investors can get started for as little as $25.

Lending Club uses a model rank system to grade borrowers. The system uses a combination of a proprietary scoring model, FICO score, and other credit features of the applicant. For non-performing loans, Lending Club charges investors 18% of any amount collected if no litigation is involved.

 If litigation is needed, investors must also pay 30% of hourly attorney fees.

Prosper

Launched in 2006, Prosper was the first P2P lending platform in the US. It has since funded over $9 billion in loans. Prosper only offers unsecured consumer loans and does not make SME loans.

Like Lending Club, Prosper offers 36- and 60-month loans with amounts ranging from $2,000 to $35,000. It also operates under the notary business model.

Source: Prosper, PeerCube

Prosper offers its loans on a grading scale:

Source: Prosper, PeerCube

Default rates on Prosper loans:

Source: Prosper, PeerCube

Returns across all grades:

Source: Prosper, PeerCube

Prosper charges borrowers a “closing fee,” which ranges from 0.5% to 5%, depending on the grade. Investors are charged a 1% annual fee based on current outstanding loan principal. The minimum investment is $25.

Prosper grades borrowers through its Prosper Score. This proprietary system focuses on criteria such as debt-to-income ratio and other “soft checks” conducted by credit bureaus. Prosper uses both the custom score and the credit reporting agency score to assign the borrower grade. Prosper bundles all non-performing loans and sells them to a third party. The affected investors then receive an amount proportional to their defaulted loan.

Lending Club and Prosper are the big players in the industry and the only services open to retail investors. The platforms covered below are available to accredited investors only.

Upstart

Launched in 2014 by a bunch of ex-Googlers, Upstart has originated more than $600 million worth of loans.

Source: Upstart

Upstart uses unique grading criteria. It looks at FICO scores but also considers educational background. The firm has the lowest default rates across the industry thus far. Around 92% of loans are on track to be repaid in full.

Upstart’s target niche is young professionals—over 90% of borrowers are college graduates—and small-business start-ups. It offers loans between $3,000 and $35,000 for fixed periods of three to five years. Interest rates range from 4% to 26%, depending on grade.

Source: Upstart

Upstart employs a modeling system that has so far been remarkably accurate at predicting future defaults.

Source: Upstart

… and returns.

Source: Upstart

The way Upstart operates differs in many ways from other P2P lenders. To start, investors do not pay fees. The company makes its money solely on origination fees from the borrower. If a loan defaults, Upstart refunds the investors using the origination fee. This means if loans go bad, Upstart loses. It has skin in the game.

Loan selection also differs in that investors cannot cherry-pick individual loans. Instead, they choose to invest in a specific grade or loans with set criteria. The minimum investment is $100.

How to Get Started

Based on our research, here is our recommendation on the best way to get started in peer-to-peer lending.

While Prosper offers higher returns and lower default rates on low-grade loans, Lending Club offers the same on high-grade loans. Each platform can earn investors outsized returns, so you should follow a key principal of P2P lending and diversify your investments across both platforms.

Accounts on Lending Club and Prosper can be set up in just a few minutes. If you want a representative to walk you through the process, both platforms have helplines that are open Monday to Saturday, 8:00 am–5:00 pm PT.

Free Report: The New Asset Class Helping Investors Earn 7% Yields in a 2.5% World

While the Fed may be raising interest rates, the reality is we still live in a low-yield world. This report will show you how to start earning market-beating yields in as little as 30 days... and simultaneously reduce your portfolio’s risk exposure.

Claim your free copy here.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules