Now that we’re in 2018, there are more ways to invest than ever before. From traditional investing through a stock broker or financial advisor to do-it-yourself day trading to managing your money through a robo-advisor or investment app, there are a variety of options to suit investors’ needs. With so many choices available, there are many investment strategies based on risk tolerance, preferred investment style, age and more.

One of the newer methods of investment has been brought about by the emergence of the internet, apps, and social networking sites. It is peer-to-peer investing.

Peer-to-peer investing is a more modern option for investors, enabling better returns than those offered by traditional savings vehicles or even the stock market. It can also be a great way of helping both borrowers obtain the financing that they need. For investors who are interested in alternatives to the traditional stock market, it can be a great way to explore other ways to invest.

Since I saw that Ben had some content surrounding the peer-to-peer investing company, Lending Club (see here, here, and here), I offered to write a post about my experience using their main competitor, Prosper.

Read on to learn more about peer-to-peer investing, and how I have personally benefitted from using Prosper to lend money to others allowing me to obtain a great return on my investment.

What Is Peer-to-Peer Investing?

Peer-to-peer investing involves lending money to borrowers without the use of an official financial institution acting as the intermediary or middleman. For this reason, it involves more risk than traditional loans through a bank, but also a higher potential return on investment.

With peer-to-peer (P2P) lending, borrowers can take out loans from individual investors willing to lend out their money for a specified interest rate. Investors can review borrowers’ profiles on an online platform, such as Prosper, before determining whether they want to loan money to him or her. The investor can then decide to lend the full amount, partial amount, or decline the loan entirely. Other investors may also choose to fund the loan if it isn’t fully funded by one investor.

For borrowers, P2P lending platforms are attractive because they often offer better interest rates than available through traditional banks, particularly for anyone with a spotty credit history.

For investors, this type of investment is favorable because they can usually obtain better returns than they would be able to on savings accounts, certificates of deposit or even on the stock market with the monthly interest payments that they receive from borrowers. While there is some risk involved, I personally have found that with some time and effort, much of this risk can be mitigated — and the potential gains can outweigh the loss.

My Experience with Prosper

Three years ago, I decided that I wanted to invest a different way. As a relatively young professional, I knew that I had some different options — and that time was on my side. I wanted to explore something beyond the stock market, savings accounts, and other choices that my parents used.

In researching, I came across the concept of P2P lending, and specifically the website Prosper. I signed up, and started investing.

The way it works is relatively simple; after signing up for an account, I deposited my initial investment amount of $1,000. I then started browsing the profiles of potential borrowers, reviewing their credit scores, their Prosper ratings (based on the payment history of borrowers on the platform), and the proposed loan terms.

I then selected individual loans to invest in, and watched as I began to see returns. The monthly interest payments were deposited into my Prosper account, where I watched them grow.

I continued to add money to my account, and have watched my earnings increase considerably. Because I am not an expert on stocks and the financial market, Prosper is a great tool for me; I can review individual profiles and get a sense of who is a good risk for a loan, or use Prosper’s Auto Invest tool to build a portfolio based on my criteria.

Over time, I have earned an average return on my investment of around 8% — which is far more than I would have earned if I had kept my money in a savings account (average annual percentage rate of .06%, or up to 1.55% for a high yield savings account).

Again, this is more than the average annual return of the stock market (adjusted for inflation, approximately 7%), but with far less risk — and no requirement that I keep my money tied up over the long-term in order to reap the rewards of investment.

How Prosper Differs from Lending Club

While I chose Prosper, there are other P2P lending platforms in the game. Another popular option is Lending Club. While the two are similar in many respects, such as screening borrowers’ credit scores, charging investors a 1% annual fee and offering loan terms of 3 or 5 years, there are some significant differences between the two sites.

The first difference is that Lending Club offers more types of loans than Prosper, and in bigger amounts. While Prosper is limited to relatively low dollar unsecured consumer loans, ranging from $2,000 to $35,000, Lending Club offers unsecured consumer loans ($1,000 to $40,000), auto refinancing loans ($5,000 to $50,000) and business loans ($5,000 to $50,000).

Next, Prosper generally has a slightly higher average return, at 8%, compared to Lending Club’s 5% to 7%. This is likely due to Prosper’s greater percentage of high risk loans, as Prosper allows borrowers with a lower credit score than Lending Club. However, Lending Club tends to offer more loans than Prosper does, and a website that users say is easier to use.

Closing Thoughts on Prosper

If you are looking for a different way to invest your money and see great returns, peer-to-peer investing is a fantastic option. My experience with prosper has helped me see better gains than I would have with any other method — and helped me grow my nest egg as a result.

How about you? Have you used LendingClub or Prosper before and if so, how has your experience been?

Tom “FIRE” runs his own personal finance blog centered around achieving Financial Independence and Retiring Early – hence the FIRE. You can follow his journey at his blog at FIREdUpMillennial.com and on Twitter @FIREdUpMillenn.