Peer to Peer lending has been around via Prosper.com and LendingClub.com for a while now, but another option that is less prominent is after-market note trading on these sites.
There are many advantages to after-market note trading. For sellers, this means having some liquidity in your investment—being able to cash out before the loan fully matures—shortening a three year loan into one or two years or even less time.
For buyers, the advantage is being able to see some repayment history on the loan. If you’re unsure about jumping into peer to peer loans, this might be a good way to go.
Also, for prospective buyers on Prosper, a note is a loan that has already funded, so you don’t have to wait for an auction or funding period. Your note will be earning interest and expecting payment much faster.
Prosper.com uses Folio Investing as their note trading partner, and charges sellers a 1% transaction fee. LendingClub.com uses Foliofn and also charges a 1% seller fee.
Prospective note buyers should remember that they’re not circumnavigating the investor account maintenance fees at 1% at both Prosper and Lending Club—regardless of if you bought the loan at issuance or the note later in the after-market, if the money is owed to you, the maintenance fees are charged to you.
Also, at Prosper the note trading platform only applies to notes issued after July 13th of 2009. At Lending Club your notes can be a little older if you want to re-sell them. The Lending Club platform extends to notes issued back to October 12, 2008.
Overall, the note trading process is fairly smooth. You usually have to digitally “sign” an agreement with the trading platform but otherwise the sites are smoothly integrated. You don’t have to open another account or fund another account—your funds will move fairly seamlessly between your Prosper or Lending Club and the designated note trading platform account whether you’re buying or selling the notes.
If you've done any note trading, I'd love to hear your feedback and comments. I haven't tried this system myself yet, but may consider it in the future.
Jessica Ward is a freelance writer based in Seattle. She writes on family, business and money.
