More on Prosper.com
Now that I have told you about Prosper’s personal lending and borrowing opportunities, it is probably wise to have you go to a brief review of the site. Over at Investor Geeks there is a six month analysis that includes both the good, the bad, and links for lenders on developing strategies in regards to their loans.
Here is a post on the topic at Investor Geeks:
“My risk-adjusted return at Prosper is about 10%, BTW. 80 loans currently. No defaults, had a few lates though, and several people have paid me back in full already.”
Also, you may want to visit Tired But Happy This is a personal story of someone who is writing in detail about their own experiences in using Prosper. Here’s a sample:
“My fourteen loans total $689, and return an average interest rate of 12.26%. So far, I have two borrowers make late payments.”
If you have any experience in using Prosper please send your comments this way!!!
Good Lending…
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Comment by ku4a on 5 February 2007:
Stephen: I am back to work after being away awhile due to illnesses. I will take a look at your analysis of the stocks I mentioned as time permits.
Also, I have been lending on Prosper.com since it began, and will comment when I get a chance.
It’s good to be back.
Comment by ku4a on 6 February 2007:
I think I originated my first loan on Prosper within a month of their opening. I bid $100 per loan. I have 76 active loans, with an average interest rate of 13.29%.
I decided early on that I was going to stay in the “prime” area (AA, A and B). I have seen people invest in the sub-prime area, generally doing “extra” research (such as interviewing the borrower, etc.). I am always interested in hearing other lender strategies.
It has easily been one of the most enjoyable investment experiences I have had. You see the good, the bad, the ugly and the bizarre.
Good luck to all who are active on Prosper.com!
Comment by Stephen Oakes on 6 February 2007:
Do you join lending groups or do most of the lending by yourself? If you do not mind me asking…how many people or percentage-wise default on the loans you make to the borrower?
Comment by ku4a on 6 February 2007:
I have not gotten involved with the groups on Prosper. The site seems to indicate that group membership by a borrower is preferable, but I am not convinced of that. So, I don’t pay much attention to group membership when evaluating loans. I never really gave much thought to lender groups, but there might be some value to that as I think about it.
I think I’ve had 3 loans default. One was “bought back” by Prosper itself for full value. I never heard the reason for this. The other defaults went out at 20-25 cents on the doller.
Of course, a lot of loans are late. Sometimes the get caught up.
When I first started on Prosper, it occurred to me that it would be easy for a borrower to blow the lenders off. The lenders are a bunch of nameless, faceless people a long way away, and each one of them has a very small stake in the total loan. It would be interesting to know, however, how the loan performance of a Prosper portfolio compares to a similar portfolio held at a bank or other lending institution. Maybe it is better :-).
Comment by Stephen Oakes on 6 February 2007:
I have another question for you as well. When you give money to the borrower do you begin making interest immediately or is there a waiting period until the full asking amount of the loan is serviced by other lenders?
Thank you so much for sharing your experiences with Prosper
Comment by ku4a on 7 February 2007:
Not sure I fully understand your question but let me give it a shot.
You earn no interest on the money sitting in your account waiting to make bids. That kind of sucks but it is the way it is as of now. Also, transfers in and out of your account take several business days. So, cash management is kind of tricky.
When you place a bid, the amount of your bid is “locked up” until you either get outbid or the listing is cancelled.
If the listing closes fully funded, if you are a winner of some amount of money (all or part of your bid), the loan begins earning interest. You will see each payment made broken down into interest, and principal reduction.
Comment by Stephen Oakes on 7 February 2007:
You answered my question just fine. So what you are telling me is that you have to win the bid and then wait until the borrower’s asking amount is 100% filled before earnings any interest…
I’m just waiting for cash to be moved over myself before I begin the bidding process. I think I will stay closer to borrowers within a group who arew considered to be prime (AA,A,B).
Maybe this weekend I’ll look into strategy!
Comment by ku4a on 7 February 2007:
Ah, I realize now an important point that I missed:
Loans are not made unless/until they are 100% funded.
If the auction ends with less than 100% funding, no loan.
If 100% funding is reached before the auction ends, lenders bidding lower interest rates will knock out higher rate bidders.
Note, also, that a minority of loans are listed as “automatic funding”. For these, the “auction” ends as soon as they are 100% funded. In other words, if you bid, you get that rate, assuming 100% is reached.
Comment by ku4a on 7 February 2007:
Actually, Stephen, what I would like for you to do this weekend is figure out a strategy for C, D, E, HR and NC borrowers in which we are guaranteed to never lose money
Comment by Stephen Oakes on 11 February 2007:
Ahh, the high risk/return scenario. I will post soon in regards to what I have dug up. I did make my first two loans last week, one to an “A” and the other to a “B” rated borrower for an average ROI of 17%. Both had decent debt to income ratios around 30%. The auction has ended for both, but there is still time left to shake out the greedy hands…so we’ll see how the cards are dealt! Very exciting.
One question that you may be able to shed some light on is whether or not the bank account and/or real estate property verification process counts as collateral in the event of default. Obviously the lender is willingly taking risks, but any liquidation of assets could certainly help to pay off the debt to lenders