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, returns range from 5.6 percent to 11 percent, depending on your risk appetite. And minimum investments are low -- only $25 per note.
At Lending Club, the biggest peer-to-peer lender, average interest rates range from 7.7 percent to 24.6 percent, depending on the risk level. Lenders can choose loan rates from A to G, going from low to high risk. There's only a $25 investment needed for each note, and investors also can diversify among many different loans.
Borrowers are rigorously screened in this alternative investment. Their average FICO credit score is 700, they maintain a 16.7 percent debt-to-income ratio and they make at least $72,751 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.