Reaping gains from peer loans
Yield-hungry investors have an enticing option: peer-to-peer loans.
Sites such as Prosper.com and Lending Club act as middlemen, matching investors and borrowers. And yields can be high. At Prosper.com, the net annualized yield is 10.69 percent, according to the company.
At Lending Club, the biggest peer-to-peer lender, average net annualized rates are 9.6 percent. Lenders can choose loans rates from A to G, going from low to high risk. There are no minimum investments, and investors also can diversify among many different loans.
Borrowers are rigorously screened in this alternative investment. Their average FICO credit score is 715, they maintain a 13 percent debt-to-income ratio and they make at least $70,000 in annual income. "We decline 90 percent of all applications," says Renaud Laplanche, CEO of Lending Club. "They are loans to prime consumers."
On the downside, there's no guarantee you'll get your money back. However, defaults are rare.