Peer to Peer Lending Status – December (2008)

photo credit: taberandrew

The struggling global economy has put a strangle hold on the lending community. Lines of credit are drying up very quickly for individuals who need capital for personal and business purposes. One potential option for individuals to seek the capital they need is to turn to peer to peer lending sources as an alternative. There are several different companies that specialize in peer to peer lending to chose from. I participate as a lender and a borrower at Prosper.com. Using peer to peer lending allows me to lend a portion of my assets to borrowers in return for a higher interest rate than a traditional certificate of deposit or bank account. There is added risk to these investments as they are not secured, but the possible return is enough to balance this risk in my opinion.

Loan Summary
Each month I post the status of my peer to peer lending account that I have through Prosper.com. This lending account is an extra income source and is one of my more established passive income streams. My current loan portfolio includes -

• Number of Loans – 49
• Average Interest Rate – 16.74%
• Daily Interest Accrual – $.94
• Number of Late Loans – 4
• Charge-Off Loans – 4
• Loans Paid Off – 5

Loans in Trouble
It’s been a very rough month for my lending account, as 2 additional loans in my portfolio went into charge-off status, bringing the total up to 4. That has dropped my number of loans from 51 to 49, which help to push down my daily accrual amount by $.07 compared to last month. According to Prosper, a charge-off loan is one that is more than 4 months late and cannot become current again. Prosper collects on charge-off loans until they are sold to a debt buyer and any payment on the loan received after charge-off but before the sale will be credited to the lender as a recovery.

The remaining principal on these 4 charge-off loans totals ($148.43). The only bright side was that one of the loans only had $4.12 remaining in principal. I also currently have 4 loans in a late status, with one that will probably end up as a charge-off loan this time next month. If that happens, it would bring my total loss on charge-off loans to ($193.83) and would put me a little above break even for 2008. This is disappointing, but under the circumstances I am not surprised. A small return on my peer to peer lending investment is much better than a -30% return on my 401k account!

One of my other late loans is currently 2 months late and the borrower has declared bankruptcy, so I will probably be taking a hit on that loan early next year. The remaining 2 late loans in my portfolio don’t appear to be at risk at this point, but things have a way of changing very quickly in this struggling economy.

Portfolio Analysis
The average lending rate for loans in my portfolio now stands at 16.74% which is a slight drop from last month. As I noted earlier, the daily interest accrual is now at $.94 which would bring in approximately $28.20 in interest income each month. Earlier this year, my long-term goal was to bring in $50 per month in loan interest which could be used to fund 1 new bid at Prosper.com. In order to reach that goal, I would need to bring my daily interest accrual rate to $1.66. In reality, that is a long shot at this point with the struggling economy. In addition, I am unable to fund any new loans as Prosper has started a process to register promissory notes so they have temporarily suspended any new funding.

Final Thoughts
I can’t say that I am please with the status of my peer to peer lending income stream. Loans are going into late and charge-off status at a increasing rate. In addition, I can’t fund any new loans at this time, so I am in a holding pattern to see what happens. I could start lending some money at other sites like LendingClub, but I will probably hold off for a while. I still think that peer to peer lending can be a viable source of passive income, although not as profitable as I once thought. I am attributing a lot of the problems with my portfolio to the economy. I think once that things turn around, this source can pick back up. Once things turn around and Prosper can open up new bids again, I will continue to lend. However, I will probably be scaling back on the amount that I lend and will make some changes to my screening process for placing new bids.

Tagged as: peer to peer lending, Prosper.com