Earlier today, Frykitty shared her experiences with Prosper, the person-to-person lending site. Her post prompted an excellent discussion. Here’s some follow-up information from Justin McHenry of Zen Personal Finance, who last month posted this collection of comments and reviews from Prosper users. He’s kindly granted me permission to reprint it verbatim.

One of the most-read posts I’ve written at Zen Personal Finance was the one from last June titled “Why Prosper.com Will Fail”. To be fair, I also wrote a counterpoint to that very post, titled “Why Prosper.com Will Succeed”. The first gets much more traffic and gets mentioned in other blogs and discussion boards, perhaps because it’s the second listing if you Google “Prosper.com”.

I have nothing against Prosper and feel a little bad that my negative take on it shows up so high on Google while my thoughts on the potential positives do not (although I linked to the positive post on the negative post).

So, 7 or so months later, I thought I’d look to see how Prosper is doing.

According to this NPR interview with Prosper CEO Chris Larsen, Prosper has over 140,000 members and has funded over $27 million in loans. My thoughts obviously haven’t dampened others’ enthusiasm.

Here are some other articles and thoughts I drummed up when trying to get a feel for how Prosper is doing today and what its prospects for long-term success might be.

Despite the somewhat derogatory headline “Want to Loan Me Money? Here’s a Picture of My Dog.”, this past weekend’s Washington Post report on Prosper.com is actually fairly positive on the company. BusinessWeek’s “A Tale of Two Lenders”, compares and contrasts Prosper with microloan site Kiva.org, which serves poor communities in Africa and elsewhere.

But forget the media — what are lenders and borrowers saying? Some of what I found (in no particular order):

Scott on Money:

It’s now been almost a quarter since I began using Prosper.com. Overall the Prosper experience has been lucrative. My portfolio currently has a risk-adjusted return of over 10%. That certainly beats what you can get currently with both money market accounts and CDs both of which currently will return you around 5%.

As I and many others have previously argued Prosper needs to address the issue of money not participating in loans. For example, I mentioned above that my risk-adjusted return was over 10%. That’s only true of the money is actually deployed in loans. If you look back over the past quarter at the overall amount of money sitting in my Prosper account the actual risk-adjusted return is significantly lower because not all of my capital has been deployed into loans.

I know this is been raised over and over and over again. But Prosper needs to provide interest on funds that are not yet invested.

I do have to consider the amount of time and investment takes to achieve the return. Right now, that’s my biggest issue with Prosper.

Countercolumn (I don’t think this person has actually used Prosper and does not back up the claims made, but the opinion is still interesting):

It’s the coolest thing in the world. It’s addicting. It’s a great little microcosm of capitalism. The lenders are the stupidest people I’ve ever seen!!!


Default rates are already, like TWICE what Experian data leads them to believe. Most veteran lenders are underwater. New lenders who haven’t learned a thing, but are chasing the illusion of 29% returns are bidding interest rates way down. Lots of borrowers aren’t even making it through 3 months without paying late. Lenders are sinking hours into researching trying to beat the odds, but don’t seem to be paying themselves a salary to compensate for the time spent in research. There’s so many idiots bidding to lend that they’re bidding loans down to less than their default rates for a given class of borrowers. There is a shortage of good borrowers.

Blogging Away Debt interviewed the person with the most invested in Prosper loans, about $750,000. He’s been pretty happy so far:

Originally, I expected returns of 18% to 20%. I now think my returns will be more like 15%. I am happy with 15%. If my returns drop to 11% or 12%, I’ll start moving money back into stocks and mutual funds.

Arctic Orangutan Weblog:

I invested a little bit to try it out. Unfortunately after the better part of a year I am currently only breaking even.

My lack of success is due to intentionally starting out funding risky loans with a higher interest rate. I wanted to start with the riskier loans to push the envelope and see how large a return I could get. I now have a better idea of how to distribute my money.

Moshe’s LifeBlog:

For the last 4 or 5 months, I’ve had a good chunk of change invested in Prosper, and it has been performing beautifully.

Prosper gives me the expected default rates for each credit rating so that I can adjust my requested rates accordingly. Therefore, if I am diversified over enough loans, it is almost no risk because it is entirely predictable, and I’m pretty much guaranteed my desired interest rate of 12%.

I have decided that this is probably the best investment opportunity available at this time, and I’m going (mostly) all in.


The biggest problem with Prosper is it takes FOREVER to get anything done. It took 3 days for me to set-up an account and get it verified. It took me another 5 days to transfer funds from my bank account into my Prosper account. Then it took me about a week to get start bidding on listings and for those to close.

A couple of my thoughts based on what I’ve been reading:

First, I think it’s amazing that someone has put $750,000 into Prosper. That would scare me. On the other hand, this person must have a lot of money to play with to even consider such a thing.

Second, I think Moshe is crazy if he is using Prosper as his main mode of investing. It’s easy to look at the promising numbers, but just as MLM schemes will tell you what you could make, they don’t necessarily correlate with what you will make. Not trying to compare Prosper to MLM, just saying this concept is too new for anyone to making it their main investment vehicle based on potential. This thing’s less than a year old, and the numbers they use for predicted default rates are based on traditional loans, not on the actual payback of Prosper loans. Prosper just hasn’t been around long enough to reliably tell you what to expect.

Beyond that, though, I guess the reason I haven’t been enthusiastic to put any money up is that it all sounds like such a hassle, setting up these accounts and parameters for possible loans, then bidding against others to place your money. I don’t have the time for all that. It seems more attractive to someone who really likes to be active with their money, someone who gets as big a kick out of being a “winner” in the system as they do in the actual return. Because your time has a value, too, and unless you think Prosper is a lot of fun in addition to the potential of higher returns, then you have to factor in how much time you’re spending when looking at your overall return.

The goal of making lending more “democratic” is great and I hope Prosper can meet that goal. But I’m still not in.

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