How I Earn Over 10% Passive Income With P2P Lending

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The following is a guest post from Financial Samurai reader, Jeremy Johnson about earning 10% returns in passive income with P2P lending. Jeremy was kind enough to help me out with a random WordPress question issue when I first started back in 2009.

Peer to peer lending is one of the most simple and effective ways I've ever found to make passive income. It has outperformed my stock picks, selling old baseball cards, my own business ideas – everything.

I've earned more money through it than I've earned at anything else except my day job. This is pretty powerful for me. I'll share a walkthrough of how this works for me and you can use/adjust for yourself.

At the end of this post, I'll highlight my favorite passive income source that is even better than P2P lending.

Prerequisites To P2P Lending

There's some qualifications to use peer-to-peer lending such as being in a state that allows it, and having a certain level of verified income in different states. Usually it's $70,000 a year or more in income.

My state, Utah, has no such requirement. I think most readers of Sam's website will make the income cut – you'll just have to live in a state that allows you to invest. Beyond that, you just need a bank account of some kind – online, credit union, etc…, it doesn't matter what kind of account it is.

Getting Started With P2P Lending

I was most interested in how I could use and spend as little time as possible on the site. Hey, I'm lazy and I like things to be automated. When I started over 2 years ago, only had automated investing. Lending Club hadn't joined the band wagon yet, but now it has.

When I saw automated investing on, I was immediately hooked. I dumped $10,000 in and input my first set of criteria and picked the notes for me to invest in while I slept. It was great.

How Do You Earn Money? is essentially a crowd lending website where you become someone who loans out money and you get paid interest. Isn't that cool? You're like a bank now, getting paid interest. It's an awesome feeling to be the lender instead of the borrower. You invest in portions of loans.

If someone on is asking for a $10,000 loan to consolidate their credit card debt, you'll more than likely not invest nearly that much. You'll invest in part of the loan – maybe $25, $50, or $100. This is called a note. Lots of people will help this person get that $10,000 loan.

And that group of people will then be the lenders of that $10,000 and when that happens, the loan will be funded and interest payments will begin. When it comes time for the borrower to pay interest each month, you'll get a portion of that interest.

Can You Lose Money In P2P Lending?

Yes, you can lose money. Like any loan, the person who got the loan could get sick, hurt, have bad luck, be irresponsible, or just plain decide not to pay anymore. If this happens, it is called a default. will try and get that person into collections, but more than likely, the only money you'll get is what has already been paid in interest. The rest would be a loss to you.

Fortunately, at this time, far more people are making their monthly payments than are defaulting, but who knows, this could change in the future.

How Do I Get 10% Returns With Prosper?

The way I get 10% is very simple. I use the automated quick invest feature of I have three categories: Low Risk, Medium Risk, and High Risk. Each loan in Prosper is assigned a rating, from A to E.

There's also a High Risk category, but I won't get into that. A's are the least risky – people with great credit and other things going for them, and E's are the most risky. However, the E's pay the most interest back to you and the A's the least, so there is that to consider when looking at what notes to get. Most of my notes are $50, with some being $25 and others $100.

P2P Lending Loan Choosing Strategy

My strategy to start was to get A, B, and C loans in an equal amount. tells you the average returns for their notes. However, I like to look at my account and see what each loan category is returning. Each month I look to see what note letter returns the most. I then set my automated loans to invest in those.

My High Risk category is D and E loans only. Medium Risk is B and C, and the Low Risk is A and B. This means I can toggle where my interest goes quickly if one note category is outperforming another. Right now, the high risk notes are returning the most, but that could change as I invest more into them.

As a side note, takes a small percentage of the interest (around 3%) earned on each loan – that's how they make their money. So if you are paid interest on a note for $1.00, will take $.03 and you will be left with $0.97. Not too bad at all.

As a side note comparison, App developers on the Apple store get charged a 30% fee on every transaction where they earn money. Therefore, I consider 3% very generous. I came up with 3% after looking at my interest payments and seeing the service fee and just doing a percent calculation of that based on the interest paid.

P2P Lending Performance

Prosper Performance Summary Dashboard - p2p lending performanc

The key values here are my account value, which is $38,259.11 and my annualized return, which is 10.58%. This is the best return I've ever had in investing. As time goes on, I'm going to try and maintain this return by investing in notes that return higher than 10%.

Right now, that is C, D, E, and HR loans. As my account balance grows, I believe I'll have to change from investing $50 per note to more like $100 in order to continue to get notes with my extra cash, but time will tell on that.

Here are my portfolio details:

Prosper Portfolio Details - p2p lending

I've got 910 notes and quite a high level of diversification across notes. I'm sure I could do better at screening notes, but my philosophy is to just go where the returns are and invest in those notes. I care about my time, so spending time screening each note or loan is not something I'm interested in doing at this time.

I have a 5% rate of notes being late right now if you count all late notes. Just over 3% of my notes have defaulted and been charged off. I imagine that number will continue to go up as I invest in more notes. makes it very easy to see how much money and % interest you are earning on your account. You can link your bank account and setup up automatic payments to every month as well and have that money get invested immediately.

If you ever need to withdraw, just turn off automated investing for a time, collect some interest, make a transfer to your bank account, then turn that automated investing back on. To do that, just uncheck your automated investments on the automated quick invest page.

P2P Lending Monthly Statements will also send you a monthly statement showing you how much interest you earned that month. This is extremely helpful to gauge your passive income per month potential.

My last statement was for December 2020, and the interest was nearly $400. This amount will vary depending on how many notes default that month. But I'm pretty happy with nearly $400 for only an hour of work or less for that month!

Prosper Monthly Statement

The reason for the high cash balance is I dumped an extra $3,000 into for that month and it hadn't been automated to new loans yet.

Downsides To P2P Lending

You'll have a tax form to use when you file your taxes each year, so it's some extra work on your taxes. In addition to that, like anything, you could have a ton of people default on their loans and lose money. You can mitigate this by diversifying your loans. These are the only downsides I see. I'm earning over 10% and love it so far.

P2P Lending Conclusion

It has been over two years now and has outperformed all my other investment attempts. I'm sure I could do even better with my investing at, however, I'm happy with a 10% return or more that only takes me about an hour per month to manage.

Right now, it's like I'm earning about $300-400 a month interest per hour (for 1 hour) and that amount will continue to rise for that hour of work. It's like I'm raising my hourly rate; that's the way I look at it.

If you can take a few hours and sign-up for an online account, get some money transferred, and invest in over 100 loans in a diversified way, you have a good chance to make returns.

– Jeremy

Update 2022 On Passive Income Investments

My favorite type of passive income investment for 2022 and beyond is real estate crowdfunding. It's nice to have a tangible asset that generates income.

The value of real estate and rental income have gone way up because interest rates have come way down. It takes a lot more capital to generate the same amount of risk-adjusted income. Further, we're all spending a lot more time at home due to the pandemic.

As inflation expectations pick up, you want to own real estate. Inflation whittles down the real cost of a mortgage and boosts the value of your property. Her is my latest passive income streams. Currently, I don't have any P2P lending passive income due to my interest in real estate.

Financial Samurai 2022 Passive Investment Income Streams

My favorite two real estate crowdfunding platforms are:

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. Investing in a diversified eREIT is the easiest way to gain exposure for most people.

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields. They also have potentially higher growth due to job growth and demographic trends. If you like investing in individual deals, CrowdStreet is an excellent platform.

I've personally invested $954,000 in real estate crowdfunding since 2016 to diversify my investments. It's nice to earn income 100% passively as I spend more time taking care of my children. 

Both platforms are free to sign up and explore.

Invest In Private Growth Companies

Finally, consider diversifying into private growth companies through an open venture capital fund. Companies are staying private for longer, as a result, more gains are accruing to private company investors. Finding the next Google or Apple before going public can be a life-changing investment. 

Check out the Innovation Fund, which invests in the following five sectors:

  • Artificial Intelligence & Machine Learning
  • Modern Data Infrastructure
  • Development Operations (DevOps)
  • Financial Technology (FinTech)
  • Real Estate & Property Technology (PropTech)

Roughly 35% of the Innovation Fund is invested in artificial intelligence, which I'm extremely bullish about. In 20 years, I don't want my kids wondering why I didn't invest in AI or work in AI!

The investment minimum is also only $10. Most venture capital funds have a $250,000+ minimum.Investing in private growth companies could have much stronger returns than P2P lending.

About The Author

65 thoughts on “How I Earn Over 10% Passive Income With P2P Lending”

  1. Simran Kaur

    Why can’t I open an account on Prosper in New Jersey? It only allows certain states to invest. Lending Club has stopped taking investment. What alternative investment sites are there for peer-to- peer lending?

  2. How do you get paid when your a lender? if you get a monthly statement, can you withdrawal the monthly interest you make?

  3. Lets keep this discussion going. I started about three years ago to learn. I started using the secondary market tool in LC, lost some money, however now LC is legal in my state and im investing again. I’ve had no problem finding loans, however im only investing small amounts at a time. Im well diversified. My average return is 6.5% I’m not very risky.

    1. currently using prosper and my account shows annual net return rate of 11.43%

      I read each note and select them. The auto invest feature, well I do not like.

  4. Any update on returns from Lending Club or Prosper? I have heard a few people saying charge offs have been going up and returns have gone down?

    Is this true in general, or are the majority of people still getting stable returns?

  5. So i have about 85-90k in LC right now and i’m depositing about 1-2.5k a month; everything handled for me automatically by LendingRobot. Any money deposited from payments doesn’t sit in there any longer than the time until the next investment round in the day (~1-3 hours). My goal is to reach a level where my passive income from this is more than my regular income. No specific reason, just because. I’m also fully maxing 401K (up to IRS limit for 401K, not just pre-tax limit) and my wife is doing the same; we also both have pensions in addition to all the investments. We’re also maxing out all other tax advantaged mechanisms (Trad –> Roth conversions, etc.) before people start getting trolly or angry about it.

    So…for me LC is just an amazing passive income machine that gets every nickle re-invested AND i’m feeding it even more monthly. Again, this is all after all other fundamental “financial hygiene” is already taken care of.

    FWIW, my parents are about to dump about 400-425k from sale of home into it and with very conservative projections have some pretty significant annual passive income within 2-3 years (~100k).

    Am i completely out of my mind or missing something here? I get the taxation argument, but all regular income is taxed and i just don’t know of another investment vehicle that is nearly as liquid (I’ve tested and I can automatically dump via Lending Robot massive amounts in just a few days), with nearly the returns (i’m getting ~15% but suspect longer term ~10%), and all passive (again, with 3rd party services which take a small cut).

    Waiting for education…(and trolling)

  6. Lending Club just opened up in NJ. I opened an account when I lived with family there for their secondary market, but never used it. Now that I live in a state that doesn’t allow it, what are the risks of investing using the old address that’s still on file with LC?

  7. Jeffrey Lock

    I have been using Prosper for years but at a smaller scale. I did setup my auto invest criteria and occassionally see the email that says thank you for your auto investment. I am now more interested in how active money really is, and wanted to consider taking a low interest rate loan for 20,000 and dumping that into Prosper to lend out at a higher rate. The numbers would be like 3.5% my borrow, and looking for 6-8% gain in lending, which is roughly managing notes with a 10-12% interest rate. Does this seem like a good concept and eventually when I pay off my investment note, I jump to that 10% range discussed in your article.

    1. I would never borrow money to try to make money, unless you can pay it off outright.

      In the end I am wondering who makes actually really solid money here. I thought about it but the risk involved would have me starting rather small and 10% on 2 or 5k is just not worth any hassle whatsoever in my opinion. I can make 2-500 easily in any given year without any other investment other than a little time.

      Has anybody been using p2p for a couple of years with $20k+ and what has been your return over the years?
      I tend to think we try to validate a concept and once you see positive returns and dump in more money just to find out it is not all that great. Sure, savings account has 0%(well close to it) but I also do not risk X to make 0.10 X in a year if all goes well. Given the regular tax rate applies to these it does even more unappealing than I thought.

      10% yearly seems to be viewed as doing good in average, but after factoring in tax, your tied up money etc. how much can you really say you made?

      1. I had the same concern, you made really good points. I was originally planning to throw 5k at this project but it doesn’t seem to worth it with taxes. At least a savings account wont get taxed.

  8. Hmm. This P2P is tough. As an example, you put in $1000 to 20 borrowers@ $50 each at 10% for 3 years (there is no choice less than 3 years, money is stuck for 3 years minimum) i.e. you expect to earn $100 after 1st year, in the best case scenario when no borrower defaults.

    If 2 default, you lost $100 in the first year, that you expected to earn in 3 years. And mind you, rest of your money is still blocked for 3 years.

    If 5 default, you lost $250 in the first year itself.

    Even with a diversification of 20 loans, I go hmm….


  9. I don’t get the love for Prosper vs. Lending Club. LC is a much larger marketplace backed by Google, and now publicly traded. They charge 1%, not 3% and offer more analytics than Prosper offers.

    What am I missing?

    1. For me, LC isn’t available in my state…

      I am getting 10.5% on Prosper for the last 2 years. I’m happy with that. I was only getting 0.69% on my savings account before. And, even after taxes, I still have more money coming in with this than I did with my savings account.

      So, first I have the emergency fund, but when it goes above my set amount (6 month’s expenses worth), then the “extra” goes into the Prosper account.

      If LC ever gets the green light in my state, I’ll look into it!!

  10. David Michael

    Thanks for the article on P2P lending, Jeremy.

    I have been in Prosper for about 16 months now and have earned about a 11% return spending a few minutes each day when I am not traveling. I use this account to diversify our retirement funds to spread out the risks. I retired over 20 years ago. Primarily I invest in B, C, and D loans, although since the defaults are growing, maybe A, B, and C loans would return similar results with fewer defaults.

    Prosper is a young, growing company and as a result there are some glitches with their computer and accounting programs on occasion. Overall, I am thrilled to get a consistent 10+ percent return. However, by far, my favorite form of investing is buying Dividend Paying Stocks and holding them forever. So much fun to watch those dividends roll in on a monthly basis. Little fuss or hassle.

    Over the short time I have been with Prosper I have noticed a gradual reduction of high quality loans in the C-E categories. For those who are content with A,B, and C loans, Prosper is a good bet. Eventually, I suspect that most investors will end up with a 7-8% return, exactly what Prosper reports. However, that’s a lot better than the 0.90 percent return I get on our savings.

    I suspect that corporate clients skim the cream way before the rest of us are left with slim pickings. Much better when I started in 2013. For up-to-date information on P2P Lending, I suggest you go to the website for Lend Academy by Peter Renton. He is up-to-date on all of the recent changes and developments on P2P Lending.

  11. I am right at 10% as well, but don’t loan past C on Prosper. Most of my loans are A or B.

    I spend probably an hour a month (maybe 15 minutes a week) just checking in. I don’t auto loan, I choose them individually. I have have a few thousand invested, so that is still a viable option for me.

  12. James@StartingNegative

    Nice to see solid returns with enough diversification. My returns are negative with LC currently, although I’m relatively new to the P2P game. I don’t think I’ll let a couple of defaults scare me off so early in the process.

    1. LC says 99.9% of lenders with over 100 $25 notes have a positive return over the life of their business. It seems that you need to invest >$2500 to nearly guarantee a positive return.

  13. Hi Jeremy. Great overview, and I’m glad you’re having a great experience.

    The few caveats you should probably mention is how scarce D-E rated loans are at Prosper. If somebody is wanting to build a 100+ note portfolio with them, they’ll have to automate via an API tool. Just going to will not be enough.

    Second, interest rates to borrowers have been steadily dropping for the past year. See NSR: !/charts?vendor=prosper&chart=monthly_irate

    In this way, a 10% return is probably going to remain unsustainable going forward. But a 8-9% return is still an incredible investment, and I remain a big fan as well.

  14. Justin Williams

    8.26% return with Prosper and have had my account open for two years. I was above 10% then was hit with some defaults in mostly B and C loans so I am going to switch it up a bit and get a bit more risky !

  15. I have been using Lending Club since 2012. I went with loans of all types but mostly higher yielding. Put in $6k and I’ve been pulling cash out as it accumulates. There is $2.6k in there now.

    Return started at 16%, is 10.7% now but adjusted for late notes only 8.03%. I won’t be investing P2P any more for the following reasons:

    Limited upside but big downside risk. If economy gets slammed I could lose everything but if economy takes off and no more defaults then returns stay the same.

    I won’t know my real rate of return until all notes are paid back… and it can only go down from here.

    No liquidity. Money is locked up until the interest trickles in over 3 to 5 years.

    Taxed as regular income.

    Over the same time period my stocks have kicked ass over LC. Of course it’s a bull market but it’s also a bull market for P2P with falling unemployment.

    Just my opinion of course and it hasn’t been terrible.

  16. I’m getting a 9.25% return on my $20k in LC and that’s with defaults included. Investing for 3+ years now.

    My allocation:
    A: 13%
    B: 36%
    C: 29%
    D: 14%
    E: 5%
    F: 1%
    G: 1%

    I’m also taking a set it forget approach, automatic $400 each month from checking to LC and re-investing the interest.

    My big decision this month is whether to allocate my 5k bonus to LC or Vanguard.

  17. This is an interesting idea, and I’ll be curious to see its performance over time. I’d imagine the default rates would be somewhat correlated with bank loan default rates, so it’ll be interesting to see how well it holds up during a recession.

    Also, given the lack of tax advantages, I still question how good it is when I can just put money in an ETF an average 10-12% per year, and have more favorable tax treatment. Still cool though.

    1. BE Pennypacker

      I think the 10-12% K-man is referring to is the average rate of return of the S&P 500 over the last 25+ years. If you buy an index ETF that follows the S&P 500, you’re likely see similar average returns over the next 25 years. There really aren’t any downsides – you won’t do any worse (or better) than the market. The hard part is, you have to be willing to hold on to your investment when the return goes negative during the stock market dips.

      1. This is a good summary provided by BE Pennypacker. Most people are tempted to try to beat the market (self included); however, it’s much harder than it sounds. Most people should be thrilled to achieve performance equal to it. The hardest part is not selling off during the downturns (which happens to be when job loss is higher, wage growth is stagnant, home prices are falling, etc).

        Fortunately, I’m pretty confident I won’t run into employment issues, and I think I’m disciplined enough to not liquidate any of my portfolio if it drops by quite a lot during any given month or year. For any funds that may need to be tapped during the next 3-5 years, this obviously is not the way to go.

    2. You can’t just put your money in an etf and get a non volatile 12% perpetual return. Everything’s a winner in a bull market, tack a few more years on and it won’t be so fantastic. youre unlikely to pick which will win over and over each year at just the right time.

      We’re all genius when looking through the retrospectoscope.

      1. Zaphod,

        If you had stopped after the first sentence, it would have seemed like an intelligent comment. The S&P 500 has historically yielded average returns of 10-12% per year. Thus, if you buy an S&P 500 index ETF (e.g. SPY), you’ll get that on average. Bull market will be far higher, bear market will be far lower.

        The downside is that the stock market is volatile, and we can never be sure if current average returns will be reflective of future average returns. If you bought an equity ETF (assuming it’s not an inverse ETF), you probably lost quite a bit in 2008-2009. The S&P fell by more than 50% in about 6 months.

        Over the long run, I don’t really care about dips like that, but I guess it makes some people uneasy.

        1. Maybe eventually I will. I do some stock picking on occasion, but honestly ETFs are a great way to go. I’m working on my dissertation now, so have been relying to a larger extent on passive investments like this as I don’t have as much time anymore.

          Anyone can make money in a bull market. It’s really how you handle the bear markets that makes or breaks long-term performance.

    3. In a bull market, you can crush 10-12%. Take the last 6 years, for example. S&P 500 had returns of 25.94%, 14.82%, 2.10%, 15.89%, 32.15%, and 13.48% (2009-2014). This is a very passive investment, and people that made good picks probably did much better.

      You might be able to do even better without doing much research or thinking. Take the Russell 2000 index (e.g. ETF is IWM). It’s well known that historically small caps have outperformed large caps, so perhaps this will do even better than the S&P 500. That being said, in recent years it has been similar, and nobody knows the future. Worth consideration, but this P2P lending stuff seems cool too, and probably much less volatile.

  18. Above Average Black

    I might try it out with a small amount to see what happens. Won’t put in a lump sum. I might put in $100 bucks a month. I think I’m only interested in E loans, more so out of curiousity.

  19. Does the limitation you spoke of in order to invest in (income of at least $70,000) apply to California? I’m pretty sure I can find the answer by crawling through their FAQ’s and that-document-which-I-forgot-the-name-of, but I might get a quicker answer here. Thanks. :)

    Frugal college student

  20. Felix Money

    I wonder what would happen if they went bankrupt. I suppose your money would be lost. But things seem to be going very well right now, those rates of returns are great. Now I seriously wondering if I should invest about $10,000, see how that goes. Is there a minimum you can invest?

  21. I have to say, I’m turning from a skeptic into a potential customer. 10% is pretty darn good! Good way to diversify a bit, too.

  22. Nice work! I have a LendingClub account, used strict filters and historical loan data to try and pick my loans but “only” making 8.26%. Also if I calc the IRR myself to include the time the initial deposit was sitting in cash it is around 7 percent. Each default hurts a little though haha, even had a few people declare bankruptcy without making a single payment but that’s to be expected.

  23. The Alchemist

    I have a couple of questions:

    1. I understand that as more investors start getting into P2P, the ratio of investors-to-borrowers is growing more unfavorable for investors (i.e., more investors than borrowers). This is resulting in more competition to actually purchase the higher quality loans, and in some cases you’ll have funds sitting on the sidelines for a big chunk of time before they can get invested. Have you experienced issues with this? How much of a problem have you found it to be, in your experience?

    2. How difficult is it to liquefy funds in the event you wish to pull some dollars out, for whatever reason? I believe it’s just a matter of making your shares available for purchase by another investor, but I’m not quite clear on the mechanics. Any insights to share on that? Any penalties associated with selling a loan before it’s paid off?

    Thanks for any info you might have to share on these two questions, Jeremy.

    1. There is a way to sell the notes on a secondary market. You can actually get a slight premium for notes performing well if you want to liquify. One of the main bloggers on p2p did a test and was able to do it in a week.

    2. silvio berlusconi

      This post has been great–a lot of insights particularly through the comment section. I have admittedly never done P2P lending and will likely not start. First, I had no idea gains are taxed as earned income. I work at a BB and already am getting crushed with taxes. (I know you were in the same boat and likely empathize!) For this reason, normalizing P2P returns to brokerage account capital gains with respect to taxes gives rise to way too much P2P risk for my liking.

      Second, there seems to be significant prepayment risk (Jeremy mentioned 13.6%). This is actually a real risk and not a merit for securitized notes, Jeremy. Prepayment cuts into my return for the note tranche.

      Very insightful!


  24. P2P is on my plan for this year with the money sitting in my financial freedom pile.

    +1 for Gabe’s tax question. Being interest payments, I’d expect they’re reported as interest income via a 1099 INT and taxed with ordinary rates. But I’d appreciate confirmation from someone with an account.

    1. Might be worth investing in an IRA. Can you confirm though that funding the notes is not counted as a distribution from the IRA?

  25. How does the ROI work out in comparison to normal investments after taxes? This sort of income is taxed ordinary income, correct, vs. capital gains for traditional investing, so I would imagine that depending on your total AGI, the tax burden could be quite a bit higher.

  26. How are Prosper returns taxed? If they are taxed at ordinary income rates, that has a big impact on your rates when compared to long-term capital gains rates on stock-based investments.

    1. It is interest income so it would be taxed as ordinary income which is one of the drawbacks. Unfortunately they do not get the preferential treatment that dividends and long-term capital gains have.

      1. Taxed at regular income rates? That really takes a lot of the return for those in the higher tax brackets. Given that and the relative safety/efficiency in the broader market…doesn’t make as much sense I guess.

        1. greenknight008

          So Roth IRA that investment since it isn’t tax efficient. Problem solved. Personally I made 16%+ this year in P2P through Lending Club, but that’s with a relatively young portfolio (~1 year)-I expect my returns to normalize somewhere in the 9-10% range after a couple of years.

  27. Nishanth Muralidhar

    I participate in Lending Club’s P2P program and have earned an annualized return of 12.39% ( net of fees,service charges and recoveries). I invested in equal proportion in all sorts of notes ( from the highest investment grade ,AAA-rated, lowest yielding “A” note to the lowest investment grade , junk bond type , highest yielding “F” note). I was prepared to write off some of my investments in the lower rated notes in the hopes of earning a higher return.

    So far , 50% of my portfolio has fully paid off ( I got principal and interest back) , 40% of my portfolio is still paying principal and interest regularly , and 10% of my portfolio has defaulted on their payments and been charged off.

  28. Very interesting and well written. I wish I could invest but I am in Texas. The states that do not allow it are somewhat curious. CA and NY – both heavily regulated states allow it while Texas and AZ do not. Texas prides itself on being less regulated and AZ is known as a more libertarian type state.

    I suspect the Dallas banking industry is the reason behind Texas’ refusal.

    Anyway, I hope someday to invest.

    Prosper is just like Uber in many ways. Filling a need in an industry that is too regulated.

  29. Hey Jeremy. Great to hear from you. And wow some impressive returns with Prosper. I’m especially impressed by the returns and number of loans you have in the D and E category. I have a Prosper account myself, but haven’t gone below C yet. You’ve inspired me to work my way into those categories.

  30. Mrs. Maroon

    I currently live in a state that does not allow P2P lending. And our chosen destination for early retirement doesn’t either. Why do some states prohibit the practice? Are there any opportunities to get that changed? I like the idea of diversifying our investments, but now am stuck on the fact that we wouldn’t be able to participate.

    1. Typically, states do not outlaw the practice directly. However, their regulations are geared toward more traditional ways of lending (i.e. being a local bank) so they have specific documentation and qualification requirements. Meeting 50 flavors of qualification is expensive and time-consuming; also, even if not explicitly stated, not every State is favorable to the idea of P2P lending.
      The fastest way to uniform availability is for the companies to go public. This allows them to follow Federal guidelines, rather than each state’s. Watch for Lending Club to go this way, now that they are public. This idea was disclosed in their prospectus.

  31. Hi Sam,
    I am no professional investor or financial planner but have a interest in finance and investing and read each one of your blogs.My question is rather that investing in P2P ,why not invest in ETF or mutual funds where the ROI is better(i think about 15%) and the risk of your money going bust is less than P2P?

      1. Looks like-check the Large cap ETFs like IYY,ITOT,THRK(1 yr return is more than 15%)
        or Real Estate like SCHH,VNQ,RWR(1 yr return more than 22%).
        Moreover, investing in Prosper my money is stuck(3yrs or 5yrs loans) whereas investing in ETF’s i can always pay the fee and take out my money.As a small investor, i am really concerned about these things and right now cant make my mind between investing in Prosper and ETF’s.

        1. Got to love a bull market. The most fun is looking in reverse and saying what we could have made or made. Hopefully more people can discuss more about future investments to make money.

          What ETFs are you recommending and why? Thanks

          1. Thanks for replying Sam!
            I am not recommending any ETF’s(because i am a beginner investor).All I want is that my ROI to be better that what most banks offer and also keep my money relatively safe.
            Right now i am evaluating investing in Prosper vs ETF/mutual funds.
            The ETF which interest me right now are PRGTX,VOOG,VHT.
            What do you think?

  32. I wish that Prosper and other P2P lending sites would give us a guide on how we can help them get into other states. I recently moved to a state that doesn’t allow this and it’s a pain.

    1. Encourage them to go public! Lending Club’s prospectus included the expectation that, as a public company in the US, they could switch to uniform Federal regulations on lending, and could get up and running in all states. It has not yet happened though; but I am watching.

  33. What do you expect the default rate to be in the next economic downturn? Anyone making these loans since 2010 has not yet experienced what would happen in a 2008 type downturn or even a milder recession than that. What is the average term of your portfolio? (average time until loan is paid off)

  34. Gen Y Finance Guy

    It has been a while since my prosper account was active. I had other opportunities and needed the cash, so I have not committed any new capital in a couple of years. But I became a member back in 2010.

    Its funny because I actually just got re-paid in July of 2014 for a loan that defaulted in 2011. I think it ended up being about 50% of the original value, but it does show you that does try to actively get you your money.

    So worth the 3% for sure.

    The plan is to get some money flowing back into this account in the coming month.

    Good work on the 10% + return.


  35. Returns over 10% are pretty impressive Jeremy! The big hurdle for me would be the default rate, I would need to do my due diligence first before investing any money and diversify my portfolio, as you stated.

  36. Thanks Jeremy/Sam, nice report from actual results.
    Quick Q, I see you have a number a notes past due, at what point will you consider them a write-off and is it possible to calculate how much this will reduce your current return of 10%?

    1. Jay @ ThinkingWealthy

      Is there a tax requirement to adjust these monthly/quarterly/yearly? I feel like there should be. You should be reflecting the market value of the notes.

      I’m dubious of ratings agencies from working in finance and having read extensively on the financial crisis. What level of validation do you do or can you even do on each loan? Can you see a person’s completely financial situation?

      1. Jeremy,

        Lending Club now offers a feature on the main account page that allows you to adjust your return rate for past-due notes. I just checked mine and I’m at 12.34% in either case, but I just started using P2P a couple of months ago so that will surely go down over time.

        I don’t know how new this feature is since I just recently invested. I have a relatively small amount of money in both Prosper and Lending Club (~$10,000 total). I like both a lot so far, but I think I favor Lending Club’s site. I’ll probably keep investing equally in both to mitigate the risk of either company going under, though from what I can tell this is a burgeoning industry and both outfits seem well managed.

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