If you’re not familiar with Prosper.com, it’s a peer-to-peer lending site, so you can participate as a borrower or a lender. So far things have been pretty positive for me. Since October 2006 I’ve lent out around $600-$700 just fooling around with the process and as of today, I have only one $50 loan that looks like it’s headed for default. That one was my own fault because early on I was lending to borrowers even if they had recent delinquencies, which I learned was one of the biggest risk factors.
Rather than relying on my summary, you can check out my stats on Eric’s Credit Community, a site where you can view stats on all the Prosper lenders. It shows a general summary of what I’ve been doing on Prosper, my loans, and my bidding history.
A few months ago I enabled weekly automatic transfers to my Prosper account, which worked well, but I stopped that for now to follow the loans that I have already made and to cut back on the time drain. You can place standing orders based on criteria you set, but I don’t particularly care for them, so I go ahead and find my loans manually and that can be as time-intensive as you allow it. Eric’s Credit Community added a “What If” tab that also shows you how you would be doing if you had won all the loans you bid on. Looking at the tab, I wonder if I am setting my interest rate too high, because all the bids I missed are current.
Looking at my loans, I’m hoping to clear 15-20% even counting that one default. Hope is a good thing. I could probably absorb another default and still be doing pretty good, but after that, and the small fees Prosper charges for managing the loans, my return will begin to look less attractive. Somewhere midstream I tightened up my loan picks and began to diversify more, so I’m expecting the more recent loans to do better in the long run than the first couple I made just checking out the process.
The biggest downside I’ve seen, other than potential defaults, is that your money can be tied up on each loan for up to three years. Not a big deal if you’re ready to remain in it long term, but keep that in mind when deciding how much to place into Prosper.
Be sure to check out the high rollers on ECC, such as carrey79 and pensioner, who have more than $1.5 million invested between them. Only time will tell, but I wonder about pensioner’s loans because the ECC ROI calculator predicts that his ROI will be around 3.3%.
