I have been playing around with Prosper.Com in the last few months and I want to give my initial impressions. First, Prosper.com is a peer-to-peer lending company... think eBay for unsecured lending. Borrowers submit their loan requests including: amount ($1k - 25k), maximum interest rate (up to 29% or state maximums) and various auction variables. Prosper takes their loan application, runs a credit report and assigns a 'credit grade'.
Lenders, such as me, deposit money into Prosper and then 'bid' on different people's loans by specifying how much they want to lend (from $50 up to the total loan amount) and the minimum interest rate they are willing to accept for that particular loan (every funded loan is comprised on one borrower and many lenders). As lenders bid on the loan, the interest rate stays at the borrowers maximum interest rate until enough money has been bid to fully fund the loan. Once fully funded, the auction starts... as new lenders bid, the interest rate starts dropping until the time limit of the auction expires.
Once the loan is funded and the auction is over, Prosper manages the receipt of monthly payments for borrowers (all loans are amortized over 36 months) and credits each lender's account with their fractional share of the payment.
Here's my editorial...
- Great business model
- There's a pretty tight and cooperative lender community
- Website is well designed
- My returns, so far, are exceeding my expectations. I am a lender participating in 107 loans with an average interest rate of 18.3%. I have received payments on all of the loans (87) where a payment has come due.
- I should expect a 5% default rate based on the credit ratings of my loan portfolio. No defaults so far... but time will tell.
- Prosper does not pay you interest on your unloaned money sitting in your Prosper account.
- The cycle time to deposit money to my prosper account (both for my deposits and loan payments) is gut wrenchingly slow.
- Once you win a loan bid, Prosper goes through a rather slow verification process that should take place before the loan gets listed.
- Borrowers have complained about Prosper making various mistakes with payment posting.
Overall, I'm cautiously optimistic. Making 13-18% on my money while participating in a pretty interesting internet start-up is pretty exciting (yes, it doesn't take much to make me happy).
Please join my group on Prosper...
Here's a link to my loan portfolio. (Not completely accurate, but it's directionally correct.)