Now that peer-to-peer sites like Lending Club and Prosper have matured are they viable options to add to my savings/investment portfolio or should I only use them with extra cash?

3 Answers 3


I'll start off with the bad news.

The historical returns for lenders on those sites haven't been too hot. By my calculations the median annualized lender return is 0% for Prosper. I don't have per-lender data for Lending Club, but based on what I've seen, the results would be a bit better but probably not by much. You can see what data I do have for Lending Club on my tracking site here.

Now for some better news.

Lender returns (especially at Prosper) were dragged down significantly by some overzealous early adopters. Early on lots of people chased after 28%+ rates in E and HR grade loans thinking the default rate would be much lower than it turned out to be. Initial default rate estimates for HR grade loans based on Experian data ran about 10% if I recall correctly. Once the dust settled though, the default rates were more like 30% (annualized).

So, you take overzealous early adopters who know nothing about consumer credit rushing into a brand new market with bad information about risk right before the biggest recession since the depression. The fact that they managed to get out with even money on average actually doesn't look so bad. Since then, Prosper has greatly improved their loan rating scheme based on real data from their platform and both Lending Club and Prosper have introduced more "managed portfolio" type approaches to lending. These should result in better returns for lenders.

My biggest concern at this point is the viability of those platforms. Neither company originates enough loans to come even close to breaking even. My rough back-of-the-napkin estimates are that they would have to grow by 10x at least just to pay the bills.

  • As an 'overzealous early adopter' of Prosper, there was a lot of room for lender error early on, but it has tightened up a good bit, still like the stock market in some ways, you have to do some research on what you are funding.
    – chrisfs
    Commented Jan 30, 2011 at 8:08

Some points I encountered when evaluating Lending Club:

  1. The rate of return calculation they use is different from that of other fixed income tools. When you compare their rates to something else, whether it be an APY or APR, you are comparing apples to oranges.

  2. Most of the loans ever issued are still in progress. This is due to most of the loan volume being recent.

  3. Lending Club is not much older than the duration of a typical loan.

Points 2 and 3 make it impossible to evaluate default rates with a high degree is certainty. Issue 1 simply confuses most people.

That being said, I am not 100% against the idea. I just believe it to be more risky than it appears. We'll have to wait for more statistics.

I have not yet looked at Prosper.

  • how is the ROR calculation they use different? I haven't checked my lending club account for a while, but I imagine it's an IRR type number that should be comparable to an APY/APR number. Commented Aug 5, 2010 at 2:20
  • lendingclub.com/public/lendersPerformanceHelp.action - The formula comes with this CYA notice: "... However, there are other methods for evaluating the historical or potential investment return on fixed-income securities that you could choose to use instead, and you may want to consider such methods as well. "
    – James
    Commented Aug 5, 2010 at 15:05

I was active in Prosper for a couple years. I would not put my emergency fund in there or anything that I couldn't afford to lose, but if you diversify into a number of quality loans, you should be able to get a somewhat decent return. I would stick with AA and A loans and you'll get about 6% or so. They are three year loans and while you can sell them before hand, I would expect to hold them for the whole three years.

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