My Peer to Peer (P2P) Lending Experiment: Two Years In and I’m Getting Out


Peer to peer lendingAbout a year ago, I gave an update on my Peer to Peer (P2P) lending experiment: 12 months later. In the very original post, I invested $1000 in each of the two biggest companies of online Peer to Peer Lending – Lending Club and Prosper. I wanted to see how things operated in terms of loan selection and portfolio creation, and ultimately how close my returns would be to their projections. Would they deliver?

In fact, I had recommended Peer to Peer Lending as one of my 10 Perfect Passive Income Ideas For Physicians. Do I still think it belongs on the list?

Portfolio Update


Portfolio Expected Return: 8.24%
Starting Value: $1,000
Adjusted Current Account Value: $1,115.59
Growth: $115.59 or 11.6%
Adjusted Net Annualized Return: 5.81%

*The Adjusted Account Value is calculated by adding your outstanding loans + any cash you have in the account – past due notes (counts them as losses). See below…


  • I shut off automatic re-investing months ago so the cash value in my account has slowly grown as loans have been repaid.
  • I’ve invested in 76 notes to date, 50 of which are current and active. 16 fully paid off and completed.
  • The rest of the notes are late or have charged off means they’ve been written off completely as unsalvageable losses
  • The late loans are reflected in the adjusted account value (Lending Club gets points for transparency here).



Portfolio expected return: around 7.5%
Starting Value: $1,000
Ending Value: $1084.89
Growth: $84.89 or 8.49%
Annualized Return: 2.88%

My Account summary:


  • Pretty abysmal overall return
  • I also turned off automatic re-investing several months ago
  • I’ve invested in 41 notes, 28 of which are current and 1 of which is 1-30 days late. 9 notes which they say they have paid in full but one of the “paid off” loans shows that it is in collections


24 months in and I’ve decided to withdraw my money from both platforms as the various loans mature. I've made that decision by turning off all automatic re-investing. All paid-off loans remain in cash in my account and I’ll transfer that back to my bank account.

Here are some of my quick thoughts:

  • Returns have been far lower than expected, 5.81% and 2.88% for Lending Club and Prosper respectively. Some reports I've read state that their methods of calculating annualized returns are even inflated and should be taken with caution.
  • Most loans have a term of 3 to 5 years and so liquidity is limited. The risk feels extremely high without a high enough return and lack of liquidity. It’s really hard to justify taking on that risk at this point.
  • Personally, I’m glad I only put in $2000. While I haven’t technically lost capital yet, there’s definitely a missed opportunity cost to think about. I’m averaging 8-10% annualized on my real estate crowdfunding investments, and they’re asset-backed securities. I would’ve rather put that money there. An S&P 500 or any well-diversified index fund would’ve done significantly better as well.
  • The main issue investing in personal loans without any asset backing it (no collateral) is that many of these loans go into collections with very little hope that any of it will be recovered. There seems to be very little recourse except for a ding to their credit.
  • I also fear that if there is an economic correction, what will that do to default rates? One can only assume that it will go up significantly. Currently, unemployment rates are on the steady decline. It’s just one of many indicators of overall economic health. Trending downward is a good thing. What happens to default rates in this industry if we return to the rates of 2010?
What if we return to the 2008-2010 curve?

I've heard and read of some others doing well in this type investing, but I'm just not fully confident in it. For now, it barely stays on my list of passive income ideas because it can provide some level of return. However, I just think there are other better places to put my money.

Looks like I’m not the only one who isn't a believer of these peer to peer lending platforms. Check out the performance of Lending Club stock over the past few years.

Courtesy of Google Finance

Who else in investing in P2P and how’s it going for you? Are you bullish or bearish on this industry?


  1. Thank you for the great and honest review! I also saw some big bloggers investing in these platforms.

    I have read some negative reviews about the platforms. It’s great comfort to know I’m not the only one doubting P2P.

  2. Thanks for your such informative and honest article. I read somewhere else that people are beginning to realize that P2P investments are not such “good investments”. I learned from your experience. Thanks again.

  3. I have also had a bad experience with these platforms and am waiting out my existing loans to get out of them completely. My Lending Club account has a negative return over the two years I’ve had it due to a large number of written-off loans. On top of that, the self directed IRA account I use for it has a $100 annual fee. So by the time I get out completely, I will probably have around $4000 out of my original $5000 investment after 5 years. My Prosper account returns have been ok, but nowhere near what I could get from other investments.

  4. I have thought about giving it a go in the past. It seemed that it was too much for too little. Your post reassured me of that. Nice read, thanks

    • The fact that it isn’t asset-backed has started to get to me. I understand credit companies and banks do it all the time, but if I have an option to hold debt with collateral, I’d rather do that.

  5. This was essentially my fear when it came to P2P. There’s not enough skin in the game for the borrower. I loved this experiment and the honesty. I found it hard to believe they would return above 8% so it feels inflated to me too. If I had my play money not all tied up in Robinhood, I would give it a try just to write a honest experience with it.

    Great reporting doc!

    • Credit card companies and banks do it all the time, but these P2P lenders are accepting many borrowers that wouldn’t normally qualify for a loan/credit card. This leads to higher default rates as I’ve seen. I like Robinhood too!

    • Hopefully you’ve put that money to better use. This is only my personal experience, and I’ve read of others doing really well with it. Unfortunately I didn’t see it. At least I tried and know how I feel about it.

  6. I have about ~12K invested in Lending Club, returns around 8% right now. I see it as another method of investment that is an “alternative” to stocks and bonds but not necessary a passive income stream. I have mine set on autoinvest, and I put in a small monthly amount. It does not make up a large percentage of my portfolio but see it as some form of diversification, that perhaps is more linked to the economy at large but not necessarily the stock market. I am also invested in the real estate platforms as well with around the same returns. So far I’d say my experience is mixed, but I think I’ll stick with it for a few more years.

    • Thanks for sharing your experience. Sounds like it’s worked out well for you. As long as it’s in line with your goals and expectations, it’s definitely one way to diversify. Just not seeing it for myself unfortunately. If I had to keep one though, I’d choose Lending Club.

      • I’d say results are lukewarm, you are definitely correct that if I had simply invested that money into an s&P index fund my return would be a lot greater. My main portfolio remains index fund heavy. That said we are in a rather lengthy and probably overheated bull market. I’m just trying to put my money to work in multiple avenues to try and mitigate risk. I think next year I will push more toward the real estate crowdfunding.

        • Like most people say, it’s not a matter of if but when the market will correct. Unfortunately neither you, I, or anyone else knows when that will be. So I think preparing for it by having a well-diversified portfolio (and that includes investments outside of the stock market) is a great idea.

  7. Thanks for sharing your results PIMD. Several investors I know had similar results. In my investment group, everyone who did P2P is winding down their position and exiting. Real estate crowdfunding is now the “thing”-at least it’s backed by hard assets. Unfortunately, most require you to be an accredited investor.

  8. Okay first off…this is going to be a long comment. I consider myself something of a P2P connoisseur, so I have thoughts. Bear with me.

    Second…thanks for sharing your experience with P2P lending. I find this all extremely fascinating, and I’m glad to have another data point.

    Third…I have not had as negative of an experience as a lot of the stories I read. But then again I invest in P2P VERY differently than most people.

    Now I described myself as a P2P connoisseur because I’m interested in it, but I have no delusions about being an expert, and my theories could be totally wrong. But, I will say that a few things stand out to me about your experience that I’ve noticed are common among a lot of other unhappy P2P investors.

    1) I think the automated investing feature is probably really bad. I know that you can filter for a lot of different parameters, but it’s designed to keep the P2P companies’ loan volume up, not to find you good loans to invest in.

    Plus there are some things that I think are really big red flags that I haven’t figured out how to automate (i.e. the loan’s purpose is “Credit Card Payoff” and they’re asking for $20,000, but their revolving credit balance is only $10,000…what’s the other $10K for?)

    It was annoying manually investing the initial slug of money because it was hard to find 100+ loans at once that I felt were trustworthy. But once I got it all invested, manual investing isn’t that time consuming. It only takes maybe 15 minutes of maintenance a month to find 5 or 6 loans that meet my criteria.

    2) Too many high quality loans. I know, I know…hear me out though. More creditworthy people are more likely to pay back their loans early, because highly creditworthy people know that paying down principal saves them money in interest. Guess where that interest comes from? The borrower’s total returns.

    So if you only invest in high grade notes, you’ll still have the occasional default (maybe even more than occasional since the P2P companies’ algorithms probably weren’t right to begin with), but then you’ll also lose a bunch of interest to the high grade borrowers who pay off their principal early. It’s a double whammy, and especially frustrating because you made it a point to be conservative and invest in “good” loans.

    I notice your “fully paid” rate is about 21% and 24% for the two platforms. That’s more than twice the rate I’ve experienced, but I never invest in A or B-grade loans. I think C, D and E-grade is the sweet spot.

    3) Small sample size. When I started with P2P, the onboarding guy at Lending Club said they recommend buying at least 100 different loans to spread your money out wide enough. Since the minimum note size is $25, this meant at least a $2,500 investment.

    Now of course that’s what the Lending Club guy is going to say right? But I think there’s probably a lot of truth in it. This is a VERY heterogeneous asset class. It’s made up of a bunch of individuals’ debt spread across different geographies, demographics and socioeconomic levels.

    Any given batch of loans that are ostensibly the same by one measure, have a lot of variability and are totally different by another. The results aren’t going to be smooth.

    A baseball player with a decent but not spectacular career batting average of say .250 will have some stretches where he looks like Ted Williams and others where he looks like Mario Mendoza. But over a large enough of a sample size, he will regress to his mean ability.

    I think P2P loans probably have a similarly wide spread of results, and it takes a lot of loans to get an adequate sample that actually reflects the underlying averages. The $1,000 you put in might not have been enough to adequately diversify.

    So what’s my point with all of this? I’m not really sure.

    Don’t get me wrong; I’m not saying I’ve cracked the code, and come up with the end-all-be-all P2P investment process. I’ve been doing it for just a bit less than you (1.5 years), and my relatively successful results could easily be anomalous and will evaporate in due time.

    Neither am I a P2P apologist. I too have concluded that the risk adjusted return is probably not high enough considering you’re giving unsecured loans to strangers on the internet. There’s no way around it…there are way better investments out there.

    BUT I still do it, because:
    1) I’m a finance nerd and I continue to find the experiment interesting, even if it’s not making great returns, and…
    2) I do happen to be a personal finance apologist, and I think it’s important for people to get out of credit card debt.

    I truly believe some of these loans are for that purpose, and if I can help a firefighter in Minnesota consolidate $30,000 of 20%+ CC debt into a P2P loan that only charges her 15%, then hell yeah I’m going to do it.

    So basically I tailor my process to try to only lend to people who are genuinely attempting to consolidate high interest debt into a single payment with a lower aggregate interest rate. If I can do that, then I don’t feel bad if the returns kind of suck.

    I also happen to believe that those loans might be less likely to default then the overall pool of P2P loans, but the jury’s still out on that.

    Thanks for the P2P post. I’m sorry to hear you’re getting out, but I COMPLETELY understand why and don’t blame you a bit.

    I’ve written quite a bit about P2P on my blog. Hopefully anyone who’s read this far won’t be too upset at some mild-mannered self-promotion. This link is to the full set of rules and criteria I use to manually select P2P loans:

    • You probably should’ve submitted this as a guest post, ha! Thank you for sharing your experience. There must be people who know how to use this investment vehicle better than I do and therefore are more successful than I am, and sounds like you’re one of them. I do like the social help component of it. I remember when Lending Club used to show you a good deal of info about each and every borrower. Knowing there’s a real person who might benefit from it would defintely motivate me to invest more as well. I’ll check out your rules, thanks!

  9. I always thought that if a bank wouldn’t lend to a person applying for a loan, then it probably doesn’t make sense for me to lend to that person either.

    I’m glad it worked out alright for you, but can completely understand why you are getting out. Thanks for sharing.

    • Unfortunately, banks have to stick to strict criteria especially if they’re re-packaging and selling off those loans, and so they’re not able to look at things through the lens of common sense. Example, one person I know recently sold his company, had millions in the bank, but no current employment, so had difficulty getting a small home loan. He wanted an interest deduction. But playing it conservatively you’re probably right.

  10. I was waiting to see how this worked out for you and others.
    I’m kind of glad I didn’t jump on the bandwagon just yet.
    I fear what will happen if there is a bank, stock, housing crash too. It could get worse.

  11. I invested some money in Prosper and the returns have steadily dropped from around 8% – 2%. Must be a dying platform with returns that low.

  12. Why don’t the doctors start a p to p lending for medical residents. Refinance their debt at 4.5 or 5 %.The default rate will be very low.Doctors in practice can put in 50,000 to 500000 and get a guaranteed return of 4 % which is better than 30 yr govt bond.CONSIDERING the federal student loan is at 7 to 9% this will be a good deal for future doctors .WIN WIN.

    • I’ve definitely bounced that idea around with friends before haha. If I’m not mistaken, that’s how SoFi started. Alumni of certain top business schools would buy out school loans of graduates at those same schools feeling like it was a “safe” bet. You might be onto something if you’re serious about it!

  13. We are bankrolling our own kids medical education. 60 k/ yr out of state! We live in a modest home and drive 15 yr old cars.I feel sorry for people entering a stressful medical career with a huge pile of debt. My hope is that someone with a financial background and expertise start a p to p platform with a reasonable interest rate. Considering near zero interest rate for bank savings threre might be enough doctors to refinanace loans at may be even 2 to 3 percent rate. AS long as it is guaranteed .

  14. I read about P2P lending and thought I would try it out.
    I invested 1K about 15 months ago.
    I do totally manual investing, 50-100/loan, which gives me almost 20ish loans.
    My adjusted ROI is 9-12%.
    I invest in essentially B- to C grade loans where the borrower has some chance of paying back the loan. Eg: I don’t loan to people who make 4K/month and owe 25K on their credit cards.

    Using the right filters, you can narrow down the list and re-invest with minimal effort, though I don’t know if it is scalable. I am not sure what I would do if I had 50K to invest.

  15. Any experience w Peerstreet loans (“debt loans”) that allow the lender to provide ‘bridge loans’ for those home buyers navigating their way through the complexities of the mortgage financing process?
    -this lending program claims to secure the loan w the underlying property and suggests a higher priority of repayment to the lender in case of default, bc of it being a “debt loan”.

  16. Any experience with Peerstreet loans (“debt loans”) that allow the lender to provide ‘bridge loans’ for those home buyers navigating their way through the complexities of the mortgage financing process?
    -this lending program claims to secure the loan with the underlying property, and further suggests a higher priority of repayment to the lender in case of default, because of it being a “debt loan”.

  17. I also tried Lending club but quit after they became a publicly traded company. The business model just doesn’t make sense any more. A publicly traded company must always grow, above all else. There are only so many people in the USA who are credit worthy, and many of those credit worthy people would not turn to random strangers on the internet for funding. If Lending Club must always grow to please Wall Street, what choice will they have other than eventually lending to some very questionable debtors?

    To me, this reaks of 2008 all over again…..

  18. Hey great piece of information over here.
    You make some good points from your experience about Peer to Peer (P2P) Lending that I never thought about.
    Thanks for sharing!

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