Prosper.com - borrow from or lend to... ordinary people

Greebo

Greebo

N9017H - C172M (1976)
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Retired Evil Overlord
Has anyone got any experience with Prosper.com?

I've just learned about this site. Its designed to allow you to lend money in small amounts to borrowers, or to borrow from ordinary people, through managed lowns organized by the site.

I'm considering putting a little in as a lender to see what kind of return could be gotten, but I also noticed that you can create borrower groups for people borrowing to join to help them gain support for their cause. (Group leaders earn bonuses for having good borrowers in their group.)

I was toying with the idea of a PilotsOfAmerica group set up to promote aviation, with any proceeds going to the site.

So if anyone has any experience with this site and concept, I'd be very interested in hearing them.
 
Clark Howard has talked about Prosper.com several times in the past. He likes the concept and it appears to be well executed. You can manage your risk/reward by picking and choosing who you lend to and how much to lend. If the borrower defaults, Prosper goes after them, but you may only end up with pennies on the dollar.

Like the concept, but have not tried it myself yet.
 
It seems like an interesting concept. I do wonder how they vet the borrowers and lenders. Some of the rates are "shark" level but risk is higher, almost like venture capital. It has me curious enough to look further.
 
Like eBay or PayPal it'll be great until the scammer/criminals figure out how to make every deal a theft.
 
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Well, from what I can tell as far as lenders, you have to transfer funds to Prosper before you can lend. They rate the borrowers from actual credit history, and you choose who you lend to and how much. Not sure how much that could be turned into a scam, tho I'm sure its possible.

Seems like an interesting possible way to invest though. If I read it right, $225 over 3 years at 15% to the borrower would pay you back about $8.50/mo for 3 years. Beats a savings account, and if you judge well, more secure than stocks. :)
 
I've heard about it too Chuck and I really like the idea as well.
However the (almost!) lawyer in me is scared about the lack of security for those loans. If the borrower defaults you are left with practically no recourse. Banks, which loan to a large number of people can spread this risk around amongst all the people they lend to.
I feel that if the banks were so over pricing the risk for individuals in certain loan categories than the free market would have stepped in and already offered those individuals lower rates. The site gets it right, the best way to reduce your risk is to give lots of small loans out, so your spread your risk around.
I notice that there are a lot of credit card debt types on the site, and an awful lot of people on the site with c or lower credit ratings.
I just don't know how I'd feel with my money on the line.

That said, I do like the idea, I just think that you have to get really lucky with your borrowers, and really work to find people who won't default on their loans.
I also really don't relish the idea of becoming a loan shark.

EDIT: I notice that there is a person looking to start flying on the sports and recreation section!
 
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I went browsing through the message boards over there, and it gave me 1999 flashbacks of bubble-era "regular people" investing, back when you could get in a cab and the driver would recommend getting in on the koop.com IPO. There are loans being handed out at 25-30% rates to people who are drowning in debt. Just like 1999, you have a lot of "regular folks" convinced they've figured out a way to make easy money real quick, and have convinced themselves that they're being smart about it. A lot of them are talking about borrowing money from banks, then turning around and loaning that money to high-risk borrowers.

Ultimately, making high-risk loans is a viable business, but I'm not sure it's a viable business for hobbyists.

People with good credit have better means to borrow, namely through their homes.

And while I can understand a philanthropic endeavor of doing good by making well-placed micro-loans to those in need, I'm not sure I can get enthusiastic about charging them 25% interest for it. Ultimately, it feels a lot like selling heroin to junkies.
-harry
 
A month and a half later, I thought I'd follow up on what I've learned so far.

First of all, I decided to go ahead and sign up as a lender. I have adopted an extremely conservative lending approach. I am taking $50 each pay and putting it into Prosper and bidding only on loans with C credit or above (using Prosper's own grading system based something other than FICO) with either solid endorsments or a strong credit history. My minimum acceptable rate is 10% for A/AA, adding 1% per grade.

For Lenders, the most apparant trap on Prosper is chasing rates, or bidding by greed. Anyone interested in using Prosper as a speculative investment should start slow and do a LOT of research. Prosper has improved the information available to lenders since its inception, with the most recent improvement coming in Feb of this year where lenders can now see # of open/current lines, total lines, revolving balance and % utilization.

The scary aspect is that, because these are unsecured loans, the risk is inherently higher. To date, every month, more loans go late, on a fairly consistent linear scale. You *can* make money lending on prosper, but you virtually have to hand pick each loan.

My plan is to put in $50/2wk for 2 years or until I am bringing in enough payments to make a bid every 2 weeks, at which point I will stop seeding the account. *IF* I achieve a perfect run with no lates, this will take slightly less than 2 years - less if I continue to excede my 10% minimum. The odds of both of those happening are... slim. However, to date, the D, E and HR loans are by far the most likely loans to default.

Borrowers can do well on Prosper if they don't seek too much and they have solid credit and are willing to risk a higher rate than they ultimately should get. The borrower wishing to borrow on Prosper needs to bait the hook with a higher-than-avg. rate (for their grade) to draw the attention of the automatic bidders. Once the loan reaches a certain funding level, more bidders will join the fray. Eventually, ideally, the loan will fully fund, and then the lenders will fight over your loan, driving down the rate you will pay (and that they will earn).

I will, if you are interested, continue to provide status updates. To date, I have 3 loans at $50 each. My first payment is in transit (hopefully).

You can see info on how I'm doing at http://lendingstats.com/memberProfile?lenderId=greebo.

And while I haven't set up a PoA group yet, if anyone is interested in borrowing money through Prosper and wants to benefit PoA in the process, I will set up a group and be happy to help you in any way possible.
 
Interesting Chuck....

I will have to look into this. My only fear is gouging those in need already. If that is not an issue, then I may help out too!
 
SkyHog said:
Interesting Chuck....

I will have to look into this. My only fear is gouging those in need already. If that is not an issue, then I may help out too!
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Prosper's maximum interest rate is 30%, which is comparable to the worst credit cards. The interest rate borrowers can get varies based on their credit grade. HRs (High Risks) tend to run at the max, because HRs have the highest overall default rate. From there the rates drop quickly. AA's can get about a 9-10% rate.

You can see a lot of other independent work based on Prosper's released data here:
http://prosper.com/tools/3rdParty.aspx
 
alaskaflyer said:
Wow, the top lender on the site has more than $800k invested! Brave!

This is the first time I've heard of this, been looking through it this evening. Pretty cool.

I wonder if most banks could maintain this positive of a consumer loan portfolio?
Click to expand...
Make no mistake, some people have lost a LOT of money on Prosper.

One person made a habit of lending to extremely high risk borrowers for rediculously low interest rates. I don't know why, before my time... He's running at a -22% estimated ROI at the moment because of his lates...
 
kevin47881 said:
Chuck, does Prosper rake a percentage of the loan for admin fees?
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Prosper takes 1% of the loan (1 point). The max rate to borrowers is 30%. The max available to lenders is 29%.
 
After two months of learning the ropes, I've decided to go ahead and set up a Pilots of America group (hey, why not...) on Prosper, with all group proceeds going to support the site. Anyone PoA member interested in borrowing money on Prosper is welcome to join and I'll be happy to help you get started. :)
 
Naturally, on the grand opening, Prosper goes offline for maintenance...
 
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