Saturday, July 08, 2006

Prosper.Com Review

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...

Pros

  • 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.

Cons

  • 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...


Join my group on Prosper, people-to-people lending

Here's a link to my loan portfolio. (Not completely accurate, but it's directionally correct.)

43 Comments:

At 4:05 PM, Blogger tr8der said...

Have been wondering how prosper was working out, I looked at the site when it first started up but haven't explored it much since then. Are all of the loans for 3 yrs. or can they pay off early if they want? Is it pretty easy to manage your loans, see the payments and deploy the money? I think having a portfolio like yours with several loans across different credit classes is the way to go, any other thoughs or comments?

 
At 8:07 PM, Blogger Early Riser said...

The term on the loans is set at three years but there is no penalty for pre-payment.

Managing the loans are pretty straight forward... the Prosper screen a very well designed.

Before you jump in, spend some time reading the lender discussion board @ prosper and stay away from those NC and HR borrowers - nothing but trouble.

 
At 6:01 PM, Anonymous Andrew said...

This site sounds fascinating. You can actually be your own lender of your own money and make money as banks do? I will take a look at the site. I appreciate your detailed explanation of the process and the pros and cons. I have thought about the idea of loaning some of my own money to others at reasonable rates but did not know how to go about it.

 
At 9:26 AM, Anonymous NewHorizon said...

That link to the lenders community (well, it's a borrower's community too) will probably work for the foreseeable future. But fwiw, there's a new one now. http://forums.prosper.com/

 
At 3:28 PM, Anonymous Ben said...

Hi,

Please update on your experience on prosper so far. I have been looking at prosper for a while, but holding myself back because of the risk factor.

Thanks
Ben

 
At 3:47 PM, Anonymous Anonymous said...

Hi,
I've been a lender on Prosper.com for a few months. It's set up for borrowers. They can pay up early and get UNSECURED loans at reasonable rates. I never had a signature loan in my life! Even the credit union where I worked for YEARS demanded security for the slightest of loans (even after having lent to me before!) Prosper is a definate hassle as far as time for transfers takes forever and your money is tied up for the duration of the loan in dwindling amounts. The BEAUTY of this scenario is that besides getting an amount of interest paid back into your account monthly, you ALSO RECEIVE a small portion of your principle back, also. Use these amounts to fund new loans, and you're building a portfolio! DIVERSIFY!!!!!!! Although it's tempting to lay out a couple hundred dollars on a "B" rated lender, REMEMBER, even an "AA" lender CAN DEFAULT. There is ALWAYS risk. Simply minimize the risk with $50 increments and, of course, NEVER invest any more than you're prepared to LOSE!! At present, I have 74 loans @ over 19 percent interest. So, I can buy into at least three loans each month. See how that grows? AND, I'm having fun with it. It takes so little to amuse me.

 
At 4:54 PM, Blogger theboat said...

Can you post some of your personal experiences with the site (e.g., which credit grades yielded the most for you, any red flags that showed up in retrospect in loans that defaulted, etc.)? I'm going to steadily post mine on my blog, but I'm hoping to find others online who are doing the same so that I can try to improve my results, and write about it so that others can do the same.

 
At 2:58 PM, Blogger Everyday Finance said...

I did a piece on Prosper on my Everydayfinance site (click on name to visit). I can attest to the somewhat since I signed up a few weeks ago and have done ~$1000 in loans so far. I only started with $2000, but the diversified income potential is very appealing. While I agree with the potential for abuse, there is a nice check and balance system with incentives, which is the group aspect. There are some groups which have 100% performance on their loans. If you stick with the successful groups, you may give up a bit on the return, but have a much lower likelihood of a loss. I would be surprised if anyone doing their homework actually loses money if they're spreading out their loans. Will report back in a week or two on my personal experience once the loan payments start coming due. Until then, good luck! Dan

www.everydayfinance.blogspot.com

 
At 2:51 PM, Blogger Everyday Finance said...

Glad to report back that after a few months, I have no defaults (hence, several loans are currently paying) and my average loan rate exceeds 13%. I just moved some more money into the account. Plenty of strategies, tips and learning experiences listed at everydayfinance. Good luck to new entrants! Dan

 
At 6:02 PM, Anonymous Anonymous said...

It would be interesting for Prosper to create a secondary market for these loans. As a lender, I may not want to keep the investment the entire three years and would like a way to sell my portfolio back to the Prosper community.

 
At 10:57 AM, Anonymous Anonymous said...

Prosper does not offer any method for lenders to liquidate and leave, other than to stop lending and wait for their existing notes to mature or default. They need to create a process for other lenders to buy other lenders notes that are not in default.

For Prosper to succeed they need to provide lenders with outside audits of the their accounts and a method for lenders to leave.

 
At 11:18 PM, Anonymous EmeritusX said...

What do you think of prosper now? I am hoping to get my investment back... look at loans from 600 to 700 days old, 90% are losing their shirts

 
At 11:21 PM, Anonymous EmeritusX said...

BTW it is dec 6 2007 you can check all kinds of data at ericscc.com very good site, I am emeritusx there. had about 33k invested and hope to get 33K back...

 
At 8:34 AM, Anonymous ProsperLenders.com said...

Prosper has introduced some new features, including bidding guidance based on actual historical performance. This may make things significantly less risky for newer lenders...

Those of you looking for more information (or a link to the forums - which have changed yet again) can go here for all of that, and more:

Prosper Lending Info

 
At 2:48 PM, Blogger Bizzy said...

Put your money in the backyard before you put it in Prosper. I have made 120 loans in one year at $100 each and the default rate is very high.

 
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At 8:52 PM, Blogger Bruce Bryce said...

Do you think it would be a good idea to take a loan out from Prosper at a low interest rate and then loan it out at a higher one? What are the risks associated with loaning out loaned money?

 
At 5:45 PM, Blogger Just A Girl From L.A. said...

I just ran across your blog and wanted to say thank you to people like you looking to make some $ and taking a chance on people like me who have loans on Prosper and hope to become a lender someday. This loan is helping me more than I could ever say. Thank you

 
At 10:55 PM, Blogger dehoang said...

I've heard about prosper.com, but it takes time for people to bid on the interest rate and all. Payday loans can give you the money you need fast without having to deal with the whole bid. Not only that, you really never know who to trust on the internet...

 
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At 9:50 PM, Blogger Brentos said...

I find that propser is allot like any web property in that you have to be dedicated and spend some time on their site to find the right borrowers or lenders.

Also the affiliate program has lapsed has it not?

 
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At 3:16 PM, Blogger Andy said...

I just have experience as a borrower on Prosper, not as a lender. Just so lenders are aware, many self-employed users have NC or HR as their rating like me. I just completed paying off my 3 year loan and I made some folks a nice chunk of interest. I'd like to get in on the other side of course...but point in case...HR can pay off if you only invest small amounts here and there over a multitude of them.

But don't discount HR and NC people. There are many reasons why their score comes up like this. Just DIVERSIFY!

 
At 4:03 PM, Blogger bbmak said...

Can you do an update on Prosper.com?
How many loans u get default?

 
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At 10:43 AM, Blogger poolpumprepairguyflorida said...

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I did this just for ships and giggles, I don't need the money.. good thing nice huh

 
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