Lending

I am a newbie and just trying to evaluate the whole p2p lending concept. Question I have is, do you really care about the stories of the borrowers say on Prosper?

Or as long as you have the credit ratings/debt2income, you are okay? THere are no telling that the stories are real anyway, so why bother, right?

Also if you could advise what other metrics you usually look at to judge a loan request, that will be helpful. Thanks in advance!

concerning the stories. What lenders have to know is that they are not validated by the service (e.g. Prosper, Lending Club).
Many lenders believe that while the story alone is no reason to bid, it can effectively keep you from bidding, e.g. when:

the description of the purpose how the loan will be used does not make sense
the listed budget has obvious errors
the listing is appealing at your pity (dubbed "cry stories")

With most platforms you have the chance to ask borrowers a question.

One example of a recent listing that (for me) does make sense is this one:
http://www.prosper.com/lend/listing.aspx?listingID=256034
Borrowing at 21.47% to lend out at a higher rate.
While borrowing to lend is usually not a good idea, at this rate it seems ridiculous.
The borrower claims his past lending success but the average age of his portfolio at Prosper is only 45 days, meaning it is too young to be hit by defaults yet.

There are known lenders that care about the description because they only fund loans with a certain goal (like helping students, or reducing credit card debts).
There have also been past studies trying statistically to determine if certain words (e.g. "desperate") included in the listing resulted in an higher than average default risk.

My advice: Don't overvalue the descriptions but do not ignore them either.

I have actually five loans running. All paying back properly.
From one loan its the second payback.

But kiva didnt withdraw the money to my account.
My availiable kiva credit is still on zero and i am waiting for my money.

kivi

Notice: i can give an answer to my question:

This was in my googlemail post:
Quote:
Please note that these funds will not be credited to your Kiva account
until the loan is repaid in full or when the loan term is complete.

So i have to wait for my money until the credit is fully repaid.

Yes, that is the way Kiva handles repayments. Lenders have to wait until the borrower has fully repaid the loan. After that the amount is paid back to the lender.
The monthly paybacks are not credited directly to lender accounts like it is handled at other services (e.g. Prosper, MyC4)

Having read through the postings here, and clicking on the top lenders listed at the upper right of lendingstats.com's home page, I am struck by the wide range of ROIs. One would think that spreading out one's amount to lend over a reasonably diversified portfolio, ROIs would be clustered in the 8-18% range, or so. One would also think that the top lenders at the upper right of lendingstats.com's page, all of whom have more than a quarter million dollars in play, would have gotten quite good at this, but muleShoe's -20% ROI really sticks out like a sore thumb. You could blame his strong concentration in "D" grade borrowers as an obvious explanation, but other poorly performing lenders have what would seem to be a healthy mix of borrower grades. One lender with almost all "A" and "B" borrowers had a 40% default statistic. It also seems very interesting that most of the top lenders jumped in with very heavy activity when they first got involved, but have had little or no participation in 2008. Did they just loan out all they had, or did they get fed up?

So: what makes a successful lender who stays involved and satisfied with his activity in p2p lending?

Prosper.com is a service that allows people to lend money - with interest - to other people, and thus turns everyone into a bank. I’ve put off writing this review for a while because I wanted to make sure this service was legitimate before endorsing it. It is, and I’ll explain why below.

Here is how the site works: Borrowers sign up with the site, then run their credit score through the site (Prosper currently uses Experian for this). Prosper converts the borrower’s credit score into a letter grade to simply things. For example, a 700 credit score would translate into a B rating on a scale with the following grades: AA-A-B-C-D-E-HR (HR = high risk).

The borrower then tells Prosper how much they’d like to borrow and Prosper gives the borrow a feel for what they can expect to pay interest-wise on their loan. A borrower with a B rating who’s looking for $1000-5000 is currently able to borrow money at 13.95%.

Next step: The borrower then starts a week-long auction for their loan. Sticking with the B rating borrower example, the borrower would probably want to start their auction at a higher rate - say, 18%. Once that goes live, people on the lending side of Prosper (including me) will bid on the borrower’s loan in increments of $50 up to the full value of the loan. Before long, a group of dozens (if not hundreds) of lenders will, together, fulfill the loan. But there will still be plenty of time on the clock. At that point, lenders will start outbidding each other and start driving down the rate of the loan do something below 18% and probably in the 14% range based on historical patterns.

the LS ROI numbers have been going up (too much) over the last few months -- as it gets further and further from the last debt sale in December, the average lateness of 4+-month lates increases, meaning this error gets more significant. In other words, immediately after the last debt sale, most 4+-month lates were just barely 4 months late (having just missed the deadline for being sold off), aside from the BK's and the few older loans not sold off for whatever reason. So LS's apparent assumption that 4+-month lates were only 4 months late was not too far off the mark. But now there are lots of loans that are 7 or 8 months late, but only being counted as 4 months late. This over-inflates the amount paid component of the calculation. As soon as the next debt sale occurs, LS ROI's will take a sharp move downward. But showing people the high ROI they're making makes for a good experience. People are more likely to visit the site time and time again if it makes them feel good. I say keep showing us that we make 13% even if in reality we're making a nifty 2%.

A couple of reasons why the ROI is 'off'.

1) Late rates were being calculated using the old Penncro Collection rates offered by Prosper, these were significantly higher then the FirstSource rates we’ll be using now.

2) Default sale prices are being calculated based on the first batch of loans Prosper sold. This ’sale price’ has significantly dropped if I’m understanding correctly. (You probably won’t get 30% back for a C homeowner on default now). Going to look into getting a more accurate estimate of default sale prices.

3) Loans are being stuck in the 4+ month band. What we do currently is estimate how many payments have been made by the lender.

e.g. If a loan is 12 months old and 4 months late then we assume it has made 8 payments. However many of the 4+ month loans are hitting the 8month late mark. The calculation assumes it's only 4 months late.

-------------------------------------------------------------------------------------------------------------------------------

Fixes:

1) This is already updated, we are now using the collection rates listed from FirstSource instead of Penncro (login to your prosper account and look at the FirstSource collection recovery rates).

2) This is pending an update, I need to get a better estimate of the default sale prices in order to update this part. I have a couple of ideas but they are a little tricky to automate.

3) This is the same as #2 and will need automation.

When the week is up, the borrow has the option on whether to take the lender’s offer or skip it.

If accepted, the lender’s money is transfered to the borrower, who repays the loan in fixed payments over three years (36 monthly payments).
My Experience

I’ve only used the service on the lending side, and I can tell you that it works very well. In fact, it works better than expected, but I imagine that’s because it’s still early and an imperfect market. I believe the balance of borrowers to lenders favors lenders right now, so lenders are getting surprisingly high returns on the money they lend.

My current rate of return on money I’ve lent is 13.59%. Yes, that’s correct. And none of the borrowers I’ve lent money to haven’t fallen even one day behind on their payments.
My Lending Strategy

When I first started using the site, I reviewed borrower’s stories and checked out their reasons for borrowing money. I would then bid on the cases that seemed like a fair risk. However, I was often bumped out by other lenders who came later to the same auction which led to more time than I wanted to invest. So I switched over to using Prosper’s portfolio management plan. With this, I simply tell Prosper what my risk tolerance is, and they’ll auto-bid on loans in dollar increments that I set.

This is also nice because Prosper will auto-fulfill loans whenever my account accrues $50 in repayments from other borrowers. Get that money back to work, pronto.
Common Questions

I’ve talked about this with a lot of friends, and here are the common questions I am asked.

Is this secured debt? No. There is nothing to repossess if the borrower doesn’t pay. However, lenders are required to choose a collections agency to work with on their behalf, assuming a borrower falls behind. Prosper has a separate market to help you determine which collections agency has had the best results collecting on overdue debt payments. There is a small fee for this.

How can I tell whether a borrower is legitimate? Proper publishes a ton of data about a person’s financial history after running the borrower’s credit score. This will give you a feel for how much debt they already have, how much they make, etc. You can also ask borrowers questions (and read questions and answers from other prospective lenders). Over time, the site also keeps a history of borrowers so people can build credibility up within the site similar to Ebay’s rating system.

Who started Prosper? The folks who founded e-Loan, so they have serious experience with online lending.
How do I get started?

I am definitely NOT a financial adviser, but if you want to give it a try, here is what I recommend: Sign up with the site as a lender. Go through the verification process, then fund your account with $75. Once the money hits your Prosper account, lend someone $50 to get a feel for how the system works. Once you’ve successfully done that, Prosper will give you a new-lender $25 bonus. Then lend out the remaining $50 in your account. You’re up 33% at that point and have a much better feel for whether this is something worth pursuing.

Inside the World of Peer to Peer (p2p) Lending
Misc.admin

Welcome to this month’s edition of the Insiders series where I speak to the insiders behind a particular industry to get another perspective on some personal finance phenomenon or trend. In the past, I have interviewed representatives from the investment planning, hedge fund and mortgage industry.

This month I am pleased to welcome Colin Henderson, CommunityLend’s Chief Technology Officer and Dave Coleman, CommunityLend’s Community Advocate, to discuss the social lending industry. By way of explanation, social lending, as the name implies, is the lending of funds between groups of individuals rather than institutions, like banks. I took our time to speak a little about their organization, the future of p2p and some fallout from Lending Club’s decision to suspend new lenders due to regulatory issues.

CommunityLend, which is similar to Zopa UK and Prosper in the US, is a facilitator in the transaction: they are a service where lenders and borrowers, agree on a loan and, once the loan is disbursed, they administer the loan. For shorthand, I will call all of these services providers “social lending businesses” to distinguish the facilitators from the individual borrowers and lenders.

My questions are in bold and Colin and Dave’s comments in normal text. Enjoy

Colin and Dave- thanks for participating. Tell us a little about CommunityLend and your progress towards launch?

Colin: We have been watching, learning, and refining our business model and processes to best reflect what we see as the core need. We believe in changing the rules of lending, in ways that benefit all those involved in the process. In addition to your introduction we actually encourage Banks to participate.

We have been building out our infrastructure, making tweaks and adjustments, as we refine the model for launch. We will be making some announcements over the coming few days about our partners in the launch.

Besides focusing on the Canadian market-place, how is CommunityLend different than some of the others social lending companies?

Dave: We are focusing on three items that are quite different. Our first focus is on ensuring we launch a social lending platform that meets the requirements of the securities regulators in this country. We plan on creating a sustainable business, one that has long term prospects and serves the best needs of both our borrowing and lending communities. By working with the regulators, we believe we can add a necessary trust factor to this new investment model.

Secondly, we have developed a unique rating system that goes beyond the standard data available in a credit file to include other key indicators of individual financial responsibility. Our system starts with all the regular checks that a bank employee would use, but we have included other elements which will help give a more holistic representation of a borrower’s reputation. Today our rating system is good, but our focus over time will be to constantly improve OUR metrics as we learn from our marketplace.

Finally, we have structured our site around a focus on communities. Specifically, we want to help communities come together to help each other financially. Just the other day I met with the head of a craft guild. We got talking about CommunityLend and by the end of the conversation he had decided to enlist as a community leader. His goal is to help other members of his guild grow their businesses. He suggested starting a community at CommunityLend for his fellow guild members so that they can get low interest loans and purchase their own equipment instead of renting. There is currently no real role for communities to be involved in traditional lending. We think we can fix this.

Let’s talk about the business behind running a social lending businesses. When Lending Club ran into its regulatory issues, a commentator on a personal finance blog asked how social lending businesses finance all the advertising and pre-launch promotion. As far as you know, how do most social lending businesses finance themselves initially and what do the administration fees charged by social lending businesses pay for?

Colin: Like any businesses there are many ways to achieve funding. In our case we have a group of active investors who believe in the model and our management team. In terms of the fees, they go to general revenue which covers operating expenses. Our job is to ensure we keep the business model ‘flat’ and lean and replace expensive traditional processes with a smart service.

Let’s wade into issues raised by Lending Club announcing: “[We have] started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through their site in the future. Until they complete the registration process, they will not accept new lender registrations or allow new commitments from existing lenders.” The issue arose because the original loans facilitated by Lending Club were not actually between the individual borrower and lender but the borrower and Lending Club who assign/transfer the loan to the lender (acknowledging in reality that the lender picks the borrower that Lending Club is lending to) and the loan created through the Lending Club service can be classified as a “security” and regulated by the appropriate regulators.

Colin: It is hard to comment on the Lending Club situation, simply because we are not party to their business. I can comment on the Canadian situation to some extent. The applicable regulation for our industry is the securities regulation. Broadly, the loan created between the borrower and lending on our service will be considered a security. We will therefore be regulated under securities legislation. We’ve been working with the Ontario Securities Commission for some time on the best approach for introducing social lending in Canada.

I know for legal reasons you can’t comment on Lending Club but how accurate is the rhetoric that social lending will replace the conventional banking industry if social lending businesses are basically doing everything a bank does but pick the borrower (in the interest of fairness this rhetoric has been promoted by individual users rather than the industry itself)?

Dave: We are certainly optimistic about the viability of social lending in Canada. On the one hand, you have industry analysts like Gartner stating that by 2010 social lending is going to make up 10% of all retail banking. On the other hand, you look at how conservative the average Canadian banking customer is and question whether they will part ways with their traditional institutions. We believe that there is a large group of people who are tired of the traditional ways of lending, a group of people who are looking for an organization that will really ‘change the rules of lending’ in their favor.

Rather than worry about the predictions, we will do what we can to offer a legitimate and better option for borrowers, and investors, and they will decide.

As the industry grows so will its regulation (I fully expect Consumer Protection laws to start addressing social lending as well as securities regulators creating rules specific to the industry). Do you agree with this assertion and, if so, will the regulators kill the golden goose before it is really hatched?

Colin: We see this as an iterative process. Everyone involved realises the world has changed and is changing, and the proverbial genie cannot be put back in the bottle. Having said that, the essence of regulation, including Consumer Protection, is just that, to protect consumers and we could not imagine building a business on the notion that we would do anything but protect our customers. We are confident that the approach we have proactively taken with the Canadian regulators will help to propel our business forward with confidence, and will provide for a viable long term business.

CommunityLend has the advantage of leaning from other players Globally and watching the industry unfold. Without naming names, what has the social lending industry done right and wrong initially?

Colin: again, not to speak about any future competitors, we see p2p lending / social lending at a moment in time, where web 2.0 meets reality. Almost anyone can put together a web site with a few links joining friends and networks, but to in integrate that successfully in an on-line loan auction model with robust systems and processes satisfying regulatory requirements … Now, that’s a far deeper matter…..One that we believe that we are tackling successfully

On a similar vein, what part of the branding of the p2p industry has thus far proven accurate and what part needs to change as the industry evolves?

Dave: the central brand promise of social lending is to secure lower interest loans for borrowers and to provide higher returns for lenders. The social lending model has made these results possible by making the traditional lending model more efficient; cutting out the middle man and letting borrowers and lenders connect directly. The existing companies in the space seem to be fulfilling this brand promise. Borrowers and Lenders on sites like Zopa and Prosper are able to secure better rates by working with each other directly.

What needs to evolve is the fundamental concept that social lending companies are here to replace banks. We would argue that there are plenty of opportunities for banks and social lending companies to work together. The efficiency of the social lending model in acquiring new borrowers and managing loans, especially unsecured loans, is a potential benefit for banks that traditionally have had large physical foot prints and high overhead costs. Working together instead of against each other can help banks and social lending companies extend credit to more people more efficiently. As the industry evolves I believe more social lending companies taking this approach an shifting their brand messaging.

Do you believe the industry will evolve past the facilitation and administration of loans?

Colin: we see the platform we have built as offering a host of potential services in the future which will be seen as valuable and relevant for our customers.

Without giving any specific advice, who do you think should be users of social lending sites and who are not ideal users? Everyone should use social lending is not an answer!

Dave: I would say the ideal borrower is someone who is responsible with their money, has a good credit rating, has strong community connections and a good reason for needing the loan. They probably also have a desire for a better borrowing process. We think the younger generation will really embrace borrowing using a social lending service as it is much more relaxed and laid back way of going about a process that is usually quite time consuming and stressful.

On the other side, sophisticated investors who are looking to diversify their existing portfolio in a small way might want to consider investing in consumer debt. Investors on social lending sites need to apply the same principles of investment to this new asset class called consumer debt. They need to understand the risks and the need to perform their own due diligence as well as the important benefits of diversification.

Here’s your opportunity for a shameless plug. Anything you want the readers to know?

Colin: The CommunityLend platform is designed to offer a better and more even handed approach to personal lending for all participants. We call this the democratization of lending. It is no longer the impersonal and expensive process that has traditionally existed. Soon borrowers will be able to get a better rate in a better way and sophisticated investors will be able to participate in investments in consumer debt. Our vision is to offer a platform that is valuable to all by having a strong secure infrastructure, built on a unique set of modern and compliance-oriented business processes.

Dave: Colin puts it perfectly!

We are very excited to be close to launch and are amazed by all the buzz around social lending . I would personally like to say thank you to everyone who has been supporting us as we drive towards our launch. I would especially like to thank Unspace Interactive and SIT whom we recently announced as partners. Michael Garrity, our CEO, wrote a blog post about them which can be found here.

Thanks …. it has truly been a pleasure. I cannot wait to do a follow up after we launch!

I have registered at Loanland.se as an investor, and started with the minimum investment of 1000 SEK. One can invest in steps of 250 SEK, and the investors compete over interest rate to fill the loan request.

Personally I'm rather disappointed with loanland. Even though they have experienced people in the board, they don't seem to learn much from similar sites. A few examples?

- There is no message board that would allow people to communicate with each other, suggest improvements, discuss investment strategies, etc.

- The site has a very intransparent information policy. One cannot search for a borrower's (or lender's) profile, if they already have any loans, nothing.
- There's no statistics about how many loans are running, how many have run into trouble... Nothing
- After a loan has been set up and paid out to the borrower, I (lender) can't even see the info text that I based my investment decision on. Come on, harddisk space is not that expensive, why would you not offer this information?

- The fees seem very high, and are very hard to predict. The lenders have to share a fixed fee (120 SEK for a 6-36 month loan). So if the loan request is not filled completely, this fee can become so high (per lender) that the whole investment becomes unprofitable. Sad

So far I would recommend people to either stay away from this site, or at least wait until the site has improved vastly.

According to Alexa traffic stats Prosper.com is still leading by a distance compared to other p2p lending sites but the gap is getting smaller:
http://www.alexa.com/data/details/traffic_details/prosper.com?site0=prosper.com&site1=lendingclub.com&site2=kiva.org&site3=zopa.com&site4=smava.de&y=r&z=3&h=300&w=610&range=1y&size=Medium

But Alexa is notorious for not being that accurate.

Looking at Compete data Prosper has much more visitors than Kiva or Lending Club:
http://siteanalytics.compete.com/prosper.com+kiva.org+lendingclub.com/?metric=uv

While I am not a longtime lender I am puzzled by the negative attitude of many posters in the Prosper forum.
Sure defaults are high. But there are some interesting listings. Given that p2p lending is a relative new concept nobody can expect that everything will be predictable.
I will continue to test the waters with small bids. I am also sure that Prosper is serious about improving collections and other issues.

What I really can not understand is lenders that started with huge investments in this fairly new concept.

It's just a matter of some people with big egos who likes to complain and stir things up.
Not all criticisms are bad, but the most vocal critics have left posting anything constructive long ago.
Defaults are high in the lower credit grades, but not high at all in the AA-B category.
I'm puzzled by most of it myself.
Before I stuck a considerable amount of money in (heck before I stuck any money in), I read everything on the site and thought about the 3 year term and the possible loss of my money a lot.
Hopefully Prosper is improving the forum. Eliminating the ability to make sock puppets, etc

FINANCING

Where Either a Borrower
Or a Lender Can Be
Small-Business Owners Turn
To Online Networks for Funds
As Banks Tighten Credit

When Jeff Walsh wanted to refinance the small-business loan on his coin laundry, he didn't want to take a chance that his bank would reject his application. "I just bought a house in 2007 and was a little nervous about what the bank would say about my debt-to-income ratio."

Instead, the 31-year-old from Schaumburg, Ill., recently borrowed $22,500 on Prosper.com, an online lending network that matches individual borrowers and lenders. The interest rate on Mr. Walsh's loan: 10.25% -- several percentage points below what he says he would have had to pay at a bank.
HIGH FINANCE FOR THE MASSES
Q&A with the founder of Prosper.com.

As the credit crisis spurs traditional lenders to tighten credit standards and raise fees, more small-business owners and entrepreneurs are turning to so-called person-to-person lending networks -- with names like Prosper, LendingClub.com and Zopa.com -- to help keep their businesses going. The unsecured loans are tiny, usually no more than $25,000. But borrowers say they are able to get loans more quickly and with less paperwork than at a bank. And people with good credit are able to lock in lower rates -- often 8% to 12% -- than they would otherwise have to pay on credit cards or unsecured bank loans.
INDEPENDENT STREET BLOG

[Handshake]
Have you used peer-to-peer lending? Read the latest post, and share your thoughts.

Person-to-person lending is a small but fast-growing corner of the Web economy. New sites are jumping in, including Virgin Money USA, majority-owned by Sir Richard Branson's Virgin Group PLC. Roughly $100 million in new P-to-P loans was issued in the U.S. last year, a number that is expected to jump tenfold by 2010, according to Online Banking Report. Recently, some larger financial institutions have begun to take notice of P-to-P lending, saying that offering loans through the sites is a way to bring in more deposits and reach more consumers.

Of course, as the economy slows, online lending faces the same default risks as bank lending. To shore up credit quality, Prosper is giving lenders more information than it did previously about borrowers' credit and employment histories. Some sites are making it easier than in the past for lenders to spread their investments across multiple loans, thus diversifying lending risk. And many of the newer players, such as GlobeFunder.com and LendingClub.com, are restricting loans to those with stronger credit, typically with credit scores above 640 or more.
[photo]
Patrick Kelley of Lexington, Ky., used a Prosper loan to help fund his instant auctions and eBay consignment business.

Alex Kalempa recently applied for a $15,000 loan with Associated Banc-Corp.'s Associated Bank to help expand his business of developing racing shift systems for motorcycles. But the bank offered him only a $1,000 credit line, although it later increased it to $5,000. He also applied for a business credit card with Capital One Financial Corp., but was offered a credit line of just $500. Instead, Mr. Kalempa turned to LendingClub.com, where he got a $15,000 loan at 9.6% in January.

"Banks are getting stingier these days," says the 25-year-old in Slinger, Wis. "When I applied for a personal line of credit with Associated Bank five years ago, they gave me a $15,000 credit line with no problems."

Associated Bank declines to comment on specific customers' situations. But David Baumgarten, the bank's executive vice president of regional banking, says the "banking industry as a whole has clearly tightened some of its lending standards," given the economic cycle.

"We certainly recognize that [online lending sites] are competition for us, but we still feel there's real value in the one-on-one relationships that we develop, especially on the small-business side," Mr. Baumgarten says.
[photo]
Jeff Walsh borrowed money through Prosper.com to refinance a small-business loan for his coin-laundry business.

Here's how online lending sites generally work: Individuals looking for loans create listings that detail how much they want to borrow, what they're planning to use the money for, and how much they're willing to pay in interest. People with money to lend can peruse the listings, which include details about borrowers' credit histories, and bid on the loans they want to fund. At Prosper, one of the biggest players, borrowers are assigned a credit grade, based on their Experian credit scores. Borrowers pay a one-time fee ranging from 1% to 3% of the loan amount, depending on their credit score, while lenders pay 0% to 1% of their principal balance.

Prosper works like an eBay-style online auction marketplace, with lenders and borrowers ultimately determining loan rates. Other sites, such as Zopa and LendingClub.com, offer fixed rates to investors and borrowers. Virgin Money coordinates loans that have been prearranged between family and friends by handling the paperwork and servicing the loan with automated electronic payments.

The rates that borrowers pay depend largely on their credit history, income, debt and other factors. Prosper is currently offering borrowers with high credit scores of 760 or more, and who want relatively small loans, average rates of 7.76%. For individuals with credit scores in the mid-to-high 600s, seeking to borrow between $10,000 and $25,000, currently posted rates range from 14.47% to 22.67%.

Individuals who are lending via these networks say they are drawn to the P-to-P market by the opportunity to earn better returns than traditional investments such as stocks and bonds, and by the chance to help out real people. They say the credit crunch is locking even borrowers who are good risks out of the traditional debt market.

And some individual lenders see the loans as an alternative asset class of investment. "It's not correlated with stock or fixed income," says David Presson of St. Louis, a research director at a money-management firm who has made about 125 loans through Prosper.

Some larger financial institutions have begun dipping a toe in P-to-P lending, hoping to get in on the ground floor as the lending networks are expected to grow. Zopa is currently working with six credit unions, including Forum Credit Union of Fishers, Ind., and USA Federal Credit Union of San Diego. "The merging of financial services and social networking is a great way to reach the younger generation," says Doug True, senior vice president of Forum Credit Union.

At Zopa, lenders deposit money into federally insured certificates of deposit held by its credit-union partners and get to choose the rate they want to earn, up to a current maximum of 4.25%, and which borrowers they want to help. The lower the rate lenders accept, the more funds are allocated to help borrowers reduce their payments.

Virgin Money, which currently helps set up payment plans between family and friends, is in talks with a national bank to begin offering student loans later this year, says Asheesh Advani, the company's chief executive. Virgin also expects to partner with banks to offer funds for mortgages and small-business loans, he says.

Meanwhile, private investment partnerships are also springing up to invest through the sites. Adam Weyeneth, president of Fair Deal Credit LLC, a small Chicago hedge fund, began extending loans through Prosper in mid-2007. "There may be some mispricings going on in certain segments of the market and we may be able to bring a more rigorous analytical approach that will allow us to select better loans" than individual lenders, he says.

P-to-P lending sites have been around for a couple of years, providing small, short-term loans mostly to individuals looking to pay off credit cards or other expensive debts. But as the credit crisis has spread to affect nearly all types of bank lending, borrowers who previously may have turned to home-equity loans or lines of credit are turning to person-to-person sites as alternatives. And that has helped to spur a jump in loan requests from borrowers with stronger credit profiles in recent months, says Chris Larsen, Prosper's chief executive.

Another small-business owner, Patrick Kelley of Lexington, Ky., says he turned to Prosper after trying three times over the past several years to get a small-business loan to help fund his instant auctions and eBay consignment business. The 38-year-old says his loan applications were rejected each time because his business wasn't yet showing a profit. Instead, Mr. Kelley got by by relying mainly on home-equity lines of credit and private funding from his business partners to kick-start his business.

"It was hard for us to get a traditional loan, being an upstart business," Mr. Kelley says. "Banks weren't familiar with the business model of selling people's stuff on eBay for a commission."

Mr. Kelley ended up getting an $18,500 loan through Prosper at 10.97% last fall. And the process was much quicker and easier than going through a bank. He estimates that each bank-loan application he submitted took several months to prepare. "There's more paperwork, and banks want an updated business plan and tax returns," he says. By contrast, he says the loan-application process on Prosper took a couple of weeks, from the time he applied for a loan to the time the money was in his bank account.

Another lure, some participants say, is the chance to do business with like-minded people. Mark Olson of Ormond Beach, Fla., applied for a Prosper loan because he liked the idea that real people, not a big bank, would be investing in his business. "These people who join in as lenders are entrepreneurs, and I really appreciate anyone who is of the entrepreneurial nature," says the 52-year-old. In December, he got a $13,000 loan at 11.09% to help start a new business operating Radio Shack franchises at certain Nascar race tracks.

Fynanz is an innovative marketplace where students get some of the most competitive rates on private student loans. Students apply for loans which are funded by individual lenders – Family, friends, alumni and others who believe what we believe – Education is the Best Investment!

At the heart of our marketplace is the Fynanz OpenLoan, a low-cost private student loan benefiting both borrowers and lenders. Students apply for loans in an auction marketplace and receive the most competitive rates. Lenders bid on student listings and can place bids in small amounts across many borrowers to diversify and lower risk while getting attractive returns.

On my current trip to China I noticed that inflation is running rampant here, in fact it’s a lot worse here then in the US. Wages, food prices, etc. are all going up.

For instance, a bag of cement which was selling for 12RMB (about $1.75) last year is now selling for 36RMB currently. (The earthquake in May caused prices to sky rocket) Worker wages have been increasing at a 10% clip yearly yet it’s seems barely enough.

The government has been trying to dampen inflationary pressures by regulating the cost of energy which seems futile. A taxi driver in Beijing told me the government is currently subsidizing them over 1000RMB/month in gas rebates to prevent fare increases to customers. However he thinks this will soon end after the Olympics when subsidies cease and fare increases become inevitable.

I’m living in the US why would this matter? If the cost of production starts going up dramatically in China, then all the cheap ‘Made in China’ goods we’re used to are inevitably going to increase in price.

An Auckland start-up is challenging the traditional finance industry by launching an online auction-based money-lending service.

Nexx, based in business growth centre The Icehouse, is an online person-to-person money match-making platform. Essentially, the company’s technology connects people who need money and people who want to lend money and earn a good rate of return, says Glenn Riddell, CEO of Nexx.

With no bank or finance company in the middle, the interest rate paid by borrowers is the same as the rate that lenders receive, making the service attractive to both sides.

“We do away with the middlemen,” Riddell says.

Borrowers are able to post a loan request on Nexx’s website, in the form of an auction listing, says Ridell. The listing includes a description of the borrower, reasons for why they need the money and what rate they are willing to pay.

Nexx verifies borrowers’ identity, using a two-factor authentication process, and runs a full credit check on their background. The company also goes to established credit information providers to get information on borrowers. Each borrower is assigned a credit grade and the information is then presented in an easy to use form that lenders can look at and make decisions that suit their risk-profile, says Riddell.

Lenders can search the listings and pledge funds with an interest rate they are willing to lend at, says Riddell. Lenders bid on the listings and are encouraged to spread their portfolio across a number of loans — to diversify risk and secure the lenders’ investment returns. So, the total of a loan is made up by many lenders, each contributing small amounts, says Riddell.

Nexx has got all its external information providers lined up and ready to go, he says. The technology platform is completed, and the company is just waiting for legal sign-off, before the beta of the site can be launched, which will very likely happen in mid to late February, says Riddell.

At the moment, Nexx is not making an offer of securities to the public, and no money is being sought, he adds.

The company consists of Riddell, president Ben Milsom, chief financial officer James Wallace, chief technical officer Mark Catley, and two developers. They are all still in, or just out of, university, says Riddell.

The Nexx team believes that online auctioning of services combined with moneylending will be a success in New Zealand. The idea is already working in Europe and the US, says Riddell. Prosper, a US site, has over $100 million in loans from close to 500,000 borrowers and lenders, and Zopa in the UK has over 300,000 users, he says. The success of these sites shows that people can come to trust each other to the extent of lending money, on exactly the same terms as a bank would, he says.

In the event someone defaults, Nexx will take the same measures as any bank would, he adds. As long as the security processes are in place, there is no reason for people to feel scared about engaging in person-to-person lending, he says.

Nexx, which is backed by angel investors, has built most of the technology platform itself, but has outsourced components like security auditing to external providers.

The company also chose to latch the system on to open-source ERP and accounting package Adempiere.

Nexx won the University of Auckland Business School’s Spark Entrepreneurship Challenge in September. The prize was $20,000 in seed funding and a nine-month tenancy in the Icehouse business incubator.

Welcome to the first ever edition of the Carnival of Peer-to-Peer Lending. For those unfamiliar with what this is allow me to explain it. The articles you see below are a collection of articles written by bloggers about the topic of peer-to-peer lending. If you are not interested in peer-to-peer lending, these articles below may be of little interest to you.

My favorite article was from Personal Loan Portfolio for the article, Prosper and Lending Club Advice for New Lenders.
I quite liked Five Investment Prerequisites to P2P Lending since it is very clear that you should be responsible with your asset allocation.
Jacob had some bad experiences on Prosper and he wrote about them - see My money lending experiences on Prosper
Prosper Lending Review gives a review of the best in peer-to-peer lending in 2007. You don’t want to miss this as it includes some sites you might not have heard of before.
Kevin presents Prosper Vintage Curves From Private Data
Mike from Prosperous Land penned a post for the Prosper Blog, Diggin’ For Gold Around The Portfolios.
Colin presents Credit crisis has given social lending a friendly pat on the back?
Amanda presents Pre-Payment Pays Off: New Feature for Prosper Borrowers

I want to thank everyone who participated in sending in an article. The next edition of this carnival will be hosted at Brip Blap. For those looking submit an article for this edition, you can do so here.

Welcome to the January 20, 2008 edition of carnival of peer-to-peer lending. Peer-to-peer lending is a new but growing area for people looking for alternative investments. I’ve just recently started lending at Prosper, and I’m excited to keep learning more about lending AND borrowing in the peer-to-peer world. Thanks for visiting, and let’s get started!

Amanda presents Me vs. Debt: Hey Prosper Lenders! Question from a Borrower… posted at Me Vs. Debt, saying, “Just wondering what the general consensus might be on refinancing a good borrower with not so good credit. I’m well aware that most lenders steer clear of low rating borrowers, but what if they had a good payment history? ”

RateLadder presents Maximize the Chance of Funding Your Listing with Not-So-Obvious Tips posted at Prosper Blog: Prosper, the online marketplace for people-to-people lending, with a few interesting and not so obvious tips. RateLadder also presents Prosper Vintage Curve Update — 1/1/2008 posted at Rate Ladder where he presents some updated vintage curves.

Pinyo presents My Second P2P Loan On Prosper posted at Moolanomy. After making his second loan, Pinyo has a few more thoughts on lending at Prosper. He also inspired an interesting debate in the comments to his post on the ethics of lending through p2p sites.

Tom presents Fynanz to tackle peer to peer student loan niche posted at Prosper Lending Review, saying, “Fynanz is a new peer to peer lending start-up that will focus on the student loan market. This is an interview with Chirag Chaman the CEO and founder.”

Peer-Lend presents Prosper Lending: Interest Rate & Bidding Guidance posted at Peer-Lend.com. Peer-Lend says Prosper has recently done something wonderful for current and future Prosper Lenders. But I bet you don’t know what it is - or, if you do, why it’s so unbelievably important. If you don’t know what’s being talked about, you should read this article. Peer-Lend also submitted Gaming the Lending Club 5% Bonus Promotion. If you have some capital and you’re interested in making a little extra money off Lending Club’s new promotion, this article has a clever idea for “gaming” your 5% into (up to) $20,000!

Wiseclerk presents P2P lending trends to expect in 2008 posted at P2P-Banking.com. If you’re wondering what to expect in the world of peer-to-peer lending in the year ahead, here are a few predictions.

Brett presents Lending Club Statistics: Rejecting Most Loan Applications posted at Personal Loan Portfolio. This statistic really surprised me: only 11.2% of all loans submitted to Lending Club were approved for listing. I’m not sure if that’s just due to Lending Club being new in the market, but it is unexpected.

What is Peer to Peer Lending? posted at Money Smart Life. A great primer for anyone new to the world of peer-to-peer lending.

The Dough Roller presents How I Overcame My Fear of Lending Money on Prosper.com posted at The Dough Roller. If you just finished reading Money Smart Life’s introduction and now you’re wondering about how to get over your initial anxiousness at entering this new arena, this post will help you in addressing your fear of lending money through Prosper and other P2P lending sites.

That concludes this edition. Submit your blog article to the next edition of carnival of peer-to-peer lending using this carnival submission form. Past posts and future hosts can be found on our blog carnival index page.

Last year Chris Barrett won $3,000 in Lending Club's video contest. Chris Barrett's video, complete with an actual script and actors, shows a girl who is getting her Paris Hilton news through magazines instead of the internet since her laptop broke. "I can't believe their putting Paris Hilton in jail," she exclaims to her friend who can't believe she's so behind the news. The friend suggests Lending Club to borrow the money and replace her computer.

Here is a short excerpt from the book where Barrett discusses Lending Club:

Still can't find anyone to invest in your project? Look online. Today, a new way to finance just about any dream you have is peer-to-peer lending. One company at the forefront of this innovation is called LendingClub.com. Instead of maxing out a credit card to start a new business, you can take out a loan from a group of people at a lower interest rate than you would pay to a credit card company or bank. All you need to do is post your loan request on the site so that potential investors can get an idea of what your project is. This arrangement is a win-win for investors and borrowers, because investors split up the investment so that any losses they might suffer will be small, which in turn causes the borrower's interest rates to be small as well. For example, right now, on LendingClub.com, a member needs $25,000 to start a DVD vending machine rental company. He has already had $24,300 invested, so he only needs $700 more before his loan is filled and he will be able to launch his company.

Winning commercial
Category: Film & Animation
Tags:
Lending Club Peer-to-Peer person-to-person-lending Paris Hilton Jail Contest Submission Life and Style laptop

February 20, 2008
P2P Lending Carnival #4
In June of last year I reviewed the top Prosper blogs. Since then, the number of bloggers covering P2P lending has increased significantly and the content covers much more than just Prosper. I'm proud to host the 4th edition of the P2P Lending Carnival. There are a huge range of articles in this edition including some heavy anti-P2P lending posts. Prosper, Lending Club, Lending Hub (Australia), Kiva, Virgin Money, and IOU Central (Canada) are covered. We have posts from borrowers as well as lenders. So enjoy...this represents the "best of" P2P lending articles over the last 2-3 weeks. Past editions have been hosted by Lazy Man and Money, Brip Blap, and Rateladder.

6 Ways To Manage The Risk of Peer to Peer Lending - This is a post by SVB on the official Prosper Blog. She wants to make the leap into P2P lending and takes a look at how to overcome her risk aversion. She has some great tips. I look forward to following her story as she starts lending.

5 Ways to Help Get a Prosper Loan Funded - Jacob from Early Retirement Extreme has lent out more than $12,000 over the past 18 months and has a few great tips for borrowers.

Is Person to Person Lending Safe? - Cash Money Life responds to reader's questions about the safety of P2P lending. "Just like any other investment," he writes, "you need to do your research to determine the level of risk you are willing to assume and the percentage of your portfolio you are willing to invest."

Peer Lending Lessons From the Dating World - In case you missed it, the CEO of Lending Club, Renaud Laplanche, was interviewed on CNBC's Power Lunch. During the interview, a comparison between P2P lending and dating was made. Money $mart Life discusses the comparison and offers some "peer lending 'dating' tips" of his own.

Get a Better Rate for Your Small Business Loan from Virgin Money - Ben takes a look at the story behind Richard Branson's purchase of Circle Lending and its rebranding into the Virgin Money empire.

Is Peer to-Peer Lending Ready for Prime Time? - Moolanomy considers P2P lending "riskier than the stock market" but thinks there is still the potential to earn money as a lender.
Prosper Taxes and Prosper Taxes: Help Me… Help You - Rateladder and Lazy Man both take a look at the confusing tax situation for the various forms of income and loss including interest, defaulted loans, late fees, referral rewards, collection fees, service fees and group leader rewards.

Prosper vs. Lending Club SmackDown–Who has the best interest rates? - The Dough Roller makes a detailed comparison of the interest rates at Prosper and Lending Club from the borrower's perspective. DR writes, "How they set interest rates is fundamentally different. Prosper follows an EBay auction style format...Lending Club sets the interest rate based on a formula...there is no bidding." DR finally concludes, "Whether you are a borrower or lender, the starting place should be to determine the interest rate you would pay or receive at Lending Club....At present, I suspect that many Prosper lenders are underestimating the risk of default, which results in better interest rates for borrowers at Prosper, and better interest rates for lenders at Lending Club." This is a well researched article and the best comparison I've seen so far. The comments are very good as well. As Don points out in the comments, Prosper uses ScoreX Plus from Experian which differs from the FICO credit score Lending Club uses so a strict comparison can't be made between the two when looking at interest rates. For more Prosper bidding tips take a look at Matt's article about when to bid on a Prosper loan.

7.2M In January Prosper Loans, But How About February? - Mike from Prosperous Land takes a quick look at recent loan stats. He is one of my favorite Prosper bloggers and I'm glad he started posting more often. For a look at two of his articles about recent Prosper drama read Prosper Approaching Nuclear War and Junk Mail Seller Revisited.

Lending Club Loan in Review - LuLu, a college student, borrows money from Lending Club and pays off her Discover Card, Citi Card and consolidates other debts.

IOU Central Launches P2P lending in Canada - WiseClerk, the best site for information about international P2P lending, takes a look at Canada's first P2P lending service.

My Opinions on P2P Lending - Ana rants against P2P lending. "I don’t think P2P lending is a good idea at all, not only for philosophical reasons but also for practical reasons," she writes. She feels these sites encourage unhealthy debt and would even avoid being a lender to avoid the ethical dilemma of "slapping those chains of debt onto another person."

Why I Started Lending Money With Prosper And Lending Club - After seeing the rates drop on his high yield ING savings account, David from My Two Dollars is turning to P2P lending.

Peer to Peer Lending: Neat Idea, Bad Investment - Adfecto thinks that bonds or the stock market are better investment options due to high default rates. He says, "I started out very excited and the more I learned, the more I ran the other way." Adfecto, I'd be interested in your comments on Matt's risk management article.

P2P Borrowers: The Greatest Tenants You Can Find - Mike compares a peer loan to a real estate investment. He writes, "I have come to think of the people I loan money to as the ideal tenants for my virtual real estate business."

Pennsylvania loans or what were early Prosper lenders thinking? - Brett takes a look at the high rate of defaults on Pennsylvania loans. We have also wondered about Pennsylvania in the past. In addition, Brett looking for some help critiquing his new Prosper portfolio.

How to Write a Good Application for a Personal Loan - The Lending Hub (not to be confused with the Lending Club) is a new P2P lending start-up in Australia. They share some tips on how to write a good loan request as a borrower. Their tips are solid and apply no matter what company you are seeking funding from or what country you are in. Stay tuned...later this week we will have a guest post from Ivan, Lending Hub's CEO.