Prosper: Investing on YOUR Terms

Note: I've received many questions about Prosper, but I've never used it. Here's a post from Frykitty, the very very quiet second author at Get Rich Slowly. She recently set up a Prosper account and has written to share her experience.

Last December I discovered Prosper, a site that connects private lenders and borrowers, and manages the resulting loans. Because I'm not a fan of the stock market, this looked like a perfect opportunity to invest on my terms, to help individuals with faces and stories, rather than contribute to the bottom-line culture. I decided to start the new year by testing Prosper with a set amount of funds to see how it performed.

Borrowers sign up on Prosper, then post a request for a loan and the maximum amount they're willing to pay in interest. Lenders then bid to fund all or part of that loan, at an interest rate of their choosing. You win a bid by coming in at a lower interest rate than your competitors.

Prosper Tip #1: Patience is a virtue.
I signed up with Prosper on January 1, 2007. Because there was no space for a mailing address in addition to a home address, there was a small verification problem that required some faxing, and that took me a few days. On January 3, I was approved as a lender. To bid on an account, you must have funds in Prosper. I immediately added an account and initiated a transfer of $500 to begin my experiment. On 1/5, I saw the money leave my bank account. On 1/9, the transfer was finally complete, and I was able to bid. Yes, that's almost 10 days between signing up and being able to bid. That's a long time in Web years. Prosper has recently made some changes to their customer support and approval processes, so this wait may be shorter in the future.

At last I was able to bid. I decided to fund 10 $50 loans, two each in five credit ranges. At the time, Prosper credit ratings went from AA to NC (no credit history), with the lowest rating being HR, or High Risk. Prosper recently changed their ratings, raising the credit scores for E (560-599) and HR (520-559), and they no longer allow listings from those with a lower score than 520, or no credit history. While I liked to help out those NC folks, apparently other lenders showed little interest. I did bid in time to fund two NC loans, and also two each of A, B, C, and D. I passed on E and HR.

Prosper Tip #2: Bid on loans that are already 100% funded.
Lenders can bid on loans for a specific amount of time, kind of like an eBay auction. If there is a lot of interest in the loan, many lenders will bid, covering the entire amount of the loan. Unless the bidding is set to be automatically ended when the loan is funded (rare), you can still bid, as the idea is to get funding at the lowest interest rate possible for the borrower. Lowball a little — put in an interest rate you still like, but that is a point or two lower than others are bidding. Chances are, you will get to fund part of that loan.

When you bid on a brand new listing, or one where little interest has been shown by other lenders, the listing will often go away when the amount is not funded, leaving you to start the process over.

Once the bidding has ended, Prosper verifies everything, then funds the loan. This can take as long as a week. One loan on which I won the bid was cancelled before funding, as Prosper was unable to verify all information regarding the borrower. Prosper is very, very careful about fraud, and they err on the side of caution, an attitude I appreciate enough to put up with the extra time it takes to get through the process.

Prosper Tip #3: Remember: you're the bank.
Once my loans were all funded, it was time to watch the payments roll in. It's something like watching a garden grow. All Prosper loans are on 3-year terms, with the borrower making monthly payments due beginning one month from origination. The borrower may pay extra principle, and can repay the entire loan at any time with no penalty. This is where it's important to remember that you are playing bank, and it's different from other investments and from savings; while the loan carries a specific interest rate, that is not your ultimate return. As with a bank loan, taking the full term to repay works in the bank's favor. Cribbing from Prosper's excellent FAQ:

Interest and annual servicing fees are accrued daily, and are based on the current outstanding loan principal.

To calculate the daily accrual amounts, take the principal balance on any given day and multiply it times the daily rate (based on a 365-day year):

Equation:
Daily accrual = (Annual rate / 365) * Principal balance
For example, if you own $50 of a loan with an annual interest rate of 10%, you will accrue $0.0136 in interest on a daily basis, and $0.00068 in lender servicing fees (which have an annual rate of 0.5%). Keep in mind that as the principal balance drops (because the borrower makes payments each month), the rate of accrual will also slow over the life of the loan.

Assuming a full three-year loan, your $50 loan at 10% interest would earn you $8.12 in total interest, and you would pay a total of $0.41 in servicing fees.

To get historical numbers, study Prosper's Marketplace Performance charts. This gives a very useful picture of the default rate as well. Default is your primary risk with Prosper, and you can manage that risk by researching the different credit grades, examining the income-to-debt ratio of the borrower, and any other factors which may affect repayment.

So far, I have only a few dollars in my Prosper account, as most of my loans originated less than a month ago. Once I have another $50 in my account, I'll bid on another loan, continuing to reinvest. I won't have a good handle on the ultimate performance of Prosper until my initial loans are repayed, and I can see how the investment has performed over those three years. At the moment, I have 10 active loans with an average interest rate of 13.99%, and all are current, with several of them processing payments. These first payments are like watching those first crocuses bloom. I hope I've planted some sunflowers.

More Real-Life Prosper Experience

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.

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!!!

Why?

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.

Roy:

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.

What's It Like to BORROW Money with Prosper?

“But where are the reviews from borrowers?” some of you may be asking. Tricia at Blogging Away Debt has borrowed money from Prosper. Here's her story.

When I first heard about people-to-people lending through Prosper.com last year, a light bulb went off in my head. Would everyday people be willing to lend me money so I could lower the interest rate on my credit card debt?

After some consideration, I signed up. It was a fairly simple to provide personal information via the Prosper website, Borrow Money From People. Low Rates. No Banks.and I did not have to give any proof of my income at this time. (Please note I signed up in May of 2006, so things may have changed since then). I was given a credit grade, and potential lenders were able to see a snapshot of my credit history, including any
delinquencies or non-current credit items. My credit grade was an A, and I didn't have any negatives within my credit history. Unfortunately, I had a high debt-to-income ratio (24%), which I knew would deter some lenders.

The next step was to decide whether to join a group. Groups at Prosper are, in theory, there to help build trust within the Prosper community. Every group has a group leader, and sometimes they assist you with writing your loan request. They can also provide something called vetting. Vetting occurs when the group leader takes a look at records from the borrower to determine that the borrower is truthful. As payment for their “work”, group leaders sometimes get group rewards that are really an extra interest rate percentage that the borrower pays on their loan. Not all groups are not created equal; some group leaders “work” harder for the borrower. Because my goal was to obtain the lowest interest rate possible, I decided to not join a group.

Next I created a listing. I was paying 13% to my credit card company on a balance of $3,500. Because I didn't want a larger loan than I needed, I asked for $3,500. I began by asking for an interest rate of 12%. My rationale was that if even I received the loan at 12%, it was a debt that had a set amount per month to pay and a fixed payback period of three years (although I can pay it back earlier at any time with no pre-payment penalty).

As you may have noticed, I started by asking for a 12% interest rate. This is the beauty of Prosper. Lenders can bid your interest rate down lower and lower by outbidding other lenders. They are competing against each other lenders to fund your loan. However, if a borrower needs the funds quickly and they are not interested in a lower interest rate, they can have their loan automatically funded. Their loan listing will end immediately after the loan is funded. Again, I wanted the lowest interest rate possible so I waited the full 7 days for my listing to end.

It was fascinating to watch bidders with my loan. I actually received two bids for the full amount of my loan request. The first one was outbid. The second one ended up funding a large portion of my loan. When it all over, I had an interest rate of 9.9%, and 13 lenders in total funding my loan. I now have 13 people that want me to succeed because they have a stake in my debt reduction progress. In fact, one of my lenders is familiar with the area where I live and he suggested a restaurant that I should visit once our debt is paid off (to celebrate). That interaction is something that you cannot get with dealing with a credit card company.

My Prosper loan was what I needed to get my credit card debt under a 9.9% interest rate. It was the last piece to my debt consolidation puzzle. I have no regrets about my experience, although in hindsight I could do a few things differently to try to obtain a lower rate.

But as they say: you live, you learn, and you blog about it!

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Kevin
Kevin
13 years ago

I had looked into Prosper a while back, too, but wasn’t sure about the risk. My major concern was even if you spread your loans out, what happens when one of them doesn’t repay? Does the money you make on the others cover that cost AND still give a nice return? I wasn’t convinced.

I would feel differently if I had all of the lender’s personal information and could verify it myself. When I last checked you couldn’t do that. Has it changed?

Jon Morrow
Jon Morrow
13 years ago

Have you seen anything like this for higher loan amounts? It seems that their maximum is $25,000.

Jag Nogg
Jag Nogg
13 years ago

Holy crap, what a horrible idea. I’d bet anything that this site will be gone before your 3 years are up.

Think about it – you are lending to people that can’t scrape together 50 freaking bucks. You aren’t doing these people a favor, you are enabling their poor financial habits.

A few of these people will default on you and your time, effort and money will have been wasted.

jf
jf
13 years ago

I remember hearing about this site back when it first launched over a year ago. It was a very interesting idea and it’s great to hear that it is still going strong. I held out on investing money at first but the system certainly has been refined from launch.

Are you involved in the Prosper community very much? One of the neat things I remember is that there are forums where lenders discuss the viability of different applications.

Cat
Cat
13 years ago

Kevin: There is a certain amount of trusting Prosper to check things for you. There is a lot of credit detail included. It would be difficult at best for an individual to check the details. Jon: I don’t think so, but I haven’t looked around as much as I’d like. Jag: You misunderstand. $50 is just the portion of the loan I funded. I chose that amount to keep my risk relatively low. The loans themselves are usually for a few thousand dollars, funded by several lenders. jf: No, I haven’t really become involved the the community, but that’s a… Read more »

J.D.
J.D.
13 years ago

Jag wrote: Holy crap, what a horrible idea. I’d bet anything that this site will be gone before your 3 years are up. My initial reaction was skepticism, too, when I first heard about Prosper last spring. I’ll admit to being a bit of a skeptic still. But since then, I’ve read a little more about microcredit, and now believe it has an important role to play in the future economy. I’m not the only one who thinks so. Last year Muhammad Yunus was awarded the Nobel Peace Prize for his work with microcredit and the poor. This is a… Read more »

brad
brad
13 years ago

For more on microcredit, check out this overview in Kevin Kelly’s Cool Tools blog.

I really like this concept and had never heard of Prosper before. Too often we overlook opportunities to reduce poverty in our own backyards…this is a very promising way to give others a hand up. And it’s interesting to view it as an investment opportunity; I hadn’t considered that before.

Jag Nogg
Jag Nogg
13 years ago

@Cat Thanks for the clarification. That makes more sense. Still – I think the risks of this type of investment are extremely high. You mentioned that you aren’t a fan of the the stock market? The stock market has been around for a very long time and has a track record that can be examined thoroughly before deciding to invest. Prosper.com has no track record. It’s completely unproven and its very existence depends on borrowers that have proven their inability to save $ (why else would they need to borrow?). If you want to help “individuals with actual faces and… Read more »

Jag Nogg
Jag Nogg
13 years ago

@JD Microcredit seems more plausible than prosper.com, but it’s still not something I would ever take part in. If I want to help somebody in need, then I GIVE the money, I don’t look for a silver lining of possible profits. The best advice I can give when it comes to lending money to friends or family is this – don’t do it – EVER. If they need money and you want to help them, then GIVE them the money as a gift and don’t accept repayment. When you loan a family member money, you have fundamentally altered your relationship.… Read more »

Tinyhands
Tinyhands
13 years ago

In principle (no pun intended) I like the idea of nontraditional/altruistic micro-lending, but I’m most uncomfortable with the 3-year term. Presumably the site has a means for selling your loan to someone else if you wanted to cash-out?

Overall, this is a high-beta investment and I’m not yet convinced it has any place in my portfolio. I’d prefer to discuss why frykitty is “not a fan of the stock market.”

Matthew
Matthew
13 years ago

So, I just signed up for Kiva and made some micro-loans. The funny thing is, I can’t seem to find anything that mentions the interest rate on the loan or the expected return. Does Kiva not charge interest for their microloans or does Kiva keep all the interest or what?

Angela
Angela
13 years ago

Kiva keeps the interest to pay for the running costs of organising the microcredit. The details are on the website somewhere.

One of the benefits of microcredit for the borrower is that its not charity. You are encouraging a move into independence, albeit with a loan rather than furthering dependence on charity. Charities don’t, for example, give people money to buy a mobile phone so that they can sell calls to other people in their village.

Meaghan
Meaghan
13 years ago

Matthew: this is from Kiva’s FAQ on their website: “26 Do I get interest on my loan? No. Kiva.org’s loans do not provide a financial return on investment. 27 Does Kiva.org charge interest? Currently Kiva.org does not charge interest to our Field Partners, however we will begin charging a small (approximately 2%) fee to our Field Partners in 2007. This fee will contribute towards Kiva.org’s operating costs while still allowing our Field Partners significant savings to their cost of debt capital. 28 Do Kiva.org’s Field Partners charge interest to the entrepreneurs? Yes. Self-sustainability is critical to creating long-term solutions to… Read more »

MossySF
MossySF
13 years ago

Do you have bond funds? You’ve lent money to a bunch of companies, governments, agencies, etc — some of them will fail and never pay you back.

Prosper works pretty much the same way. You treat it as a numbers game. Accept that some of your loans will default, price your credit grade/interest according and diversify.

communicatrix
communicatrix
13 years ago

Excellent, useful writeup–thank you.

As to why frykitty is not a fan of the stock market, the bit about not contributing to “bottom-line culture” plus a quick scan of her review of Your Money or Your Life give some pretty good clues 🙂

Casey
Casey
13 years ago

I hadn’t heard of Prosper.com, thanks for the review and I’d be really interested in hearing more as things develop.

Cory
Cory
13 years ago

I had considered this last summer, and was going to put in $1-200 and do a test run, very similar to Cat’s. The problem I encountered was that the company did not support people outside of the US (IE, us Canadians). Is anyone aware if this has changed?

Also, Cat, will you be writing a follow up in a quarter or two, to let us know the true experience on there? I would like to see a truly subjective review of the service.

Matthew
Matthew
13 years ago

Meaghan, thanks for the info. I must not have seen that on Kiva’s FAQ. I promise, I did look. 😉 While I understand the point of Kiva, I have to admit that I can’t see it becoming very popular simply because the only real reason to fund these non-interest-earning microloans is to get some warm fuzzies. There really aren’t any monetary advantages to Kiva. All it gives you is a place to tie up your funds from which others make a profit while your money comes back to you at the end of the loan terms at the exact same… Read more »

brad
brad
13 years ago

Matthew wrote:

as it stands Kiva will only appeal to those philanthropists with a strong belief in capitalism in developing countries.

There are thousands (if not millions) of them. Microcredit is become very popular among philanthropists; it’s seen as a much more effective way to help people out of poverty than by giving them handouts.

The “no tax writeoff” thing is indeed a drawback, but most serious philanthropists (by which philanthropists who are serious about the causes and people they want to support) wouldn’t let that stop them. Speaking as a (very small scale) philanthropist who regularly makes non-deductible donations.

Tinyhands
Tinyhands
13 years ago

Mossy- I personally don’t have bonds/bond funds, but the analogy is apppropriate except for the liquidity of investments (unless, as I asked earlier, it is possible to sell one’s loan to someone else). A sizeable bond market exists for exiting such an investment.

Communicatrix- Sorry, didn’t mean it to be a personal attack on Cat, but I still don’t see what’s so wrong with the stock market and I didn’t read anything like that in the YMOYL review. All I meant to suggest was that we might discuss it. You’re correct that it’s an excellent review of Prosper.com.

squished18
squished18
13 years ago

This has definitely got my interest piqued. However, there remains a fundamental question that I would like to have answered. What value does Prosper.com provide that traditional financial institutions do not?

For example, if I am a borrower that qualifies for a B credit rating (according to Prosper.com) and I want to borrow $2000, Prosper’s current interest rate is about 10%. Is this substantially better than I would get at a bank? Both Prosper and the bank are using the same information to qualify my loan, right? So why wouldn’t they give me approximately the same rate?

majeest
majeest
13 years ago

I did a quick scan of Prosper’s FAQ, so maybe I missed it, but I have a couple of concerns. The first is getting my money out of Prosper. Okay: I’ve loaned some people some money, and they’ve paid me back, or whatever. How much of a pain is it to transfer that cash back into a checking or savings account? Does a full withdrawal of funds close my account? More importantly: are they going to charge me a fee to withdraw funds? Next: taxes. Is Prosper going to send me a 1099-INT? Is that even the right form for… Read more »

John Murphy
John Murphy
13 years ago

In the UK we have a similar service at http://www.zopa.com. It is pretty popular and the good thing about it is that you earn interest on money in your account whilst it’s waiting to be lent out.
I wrote a post about it on my blog investjournal.blogspot.com

squished18
squished18
13 years ago

majeest,

This page here should answer your question about transferring funds out of your Prosper account.

https://www.prosper.com/public/help/topics/account-transfer_funds.aspx

squished

Wesley
Wesley
13 years ago

I love these reviews of new tech spins on the social networking idea. Prosper seems like a good idea, and the review was well thought-through (as I’ve come to expect from this site). Great stuff!

Cat
Cat
13 years ago

What a great discussion! I think all but a few of the questions posed have been answered. On liquidity: once you commit to funding a loan, you are in for three years. On the beta nature of Prosper: yep, it’s risky right now. Because it’s a concept I’m excited about, I’m willing to march point. I am definitely planning regular follow-ups, to let everyone know how Prosper performs. On the stock market: I know I’m a vegan at a barbecue on this one, and that’s cool. The world is not a perfect place. Many of the things wrong with it… Read more »

J.D.
J.D.
13 years ago

A company is not allowed to reach a place of comfortable profit, where everyone is earning a decent salary and whatever they do, they are doing their best. Instead, a company is expected to either expand their business, or cut costs to make the bottom line. This has tremendous consequences in the world. Shh. Don’t tell anyone, but we try to run our box factory like this. Edward Abbey said, “Growth for the sake of growth is the ideology of the cancer cell.” We’ve tried to find a place of stasis where we are providing a good product and good… Read more »

Cat
Cat
13 years ago

The box company is not publicly traded, I assume? 😉

How you run the box company is no surprise, since you’re perfectly familiar with the concept of “enough”.

Jag Nogg
Jag Nogg
13 years ago

Cat, Many public companies are driven by greed and they probably make the world a worse place, but why attempt to punish *every* company by not investing? If you invest in socially responsible companies only, you’d be sending a stronger message than if you don’t invest at all. I don’t think you’ve eliminated this problem by lending to people at prosper.com. Every borrower is going to come up with a legitimate sounding reason to borrow money. In reality, most of the money that people borrow will be used to help them buy material items (from socially irresponsible companies no doubt).… Read more »

Andrew
Andrew
13 years ago

Hi all – I’m the product manager over at Prosper, and the owner of this blog asked us to answer some of the questions. Most questions can be answered on our help pages, but here are some direct answers to questions posed here… (number indicates comment # above) 1. When a borrower misses a payment, we send them to a collection agency and ding their credit report. If the agency can’t collect after 4 months of delinquency, we sell the loan to a debt buyer. Our first debt sale returned an average of 11 cents on the dollar to participating… Read more »

Cat
Cat
13 years ago

If you invest in socially responsible companies only, you’d be sending a stronger message than if you don’t invest at all. The companies I would choose to invest in are unlikely to be publicly traded, and if they are, they would have a high failure rate, because they would not continue to grow. Which kind of precludes the need for my investment anyway. It would be necessary for me to investigate individual companies and buy stocks on my own without depending upon a mutual or index fund, as these always include companies I do not want to support. Perhaps there… Read more »

squished18
squished18
13 years ago

Cat, I disagree with the assertion that it is a “rule” that companies must grow or die to survive on the stock market. I believe it is true that the nature of the stock market encourages these types of companies. I also think that many companies have expectations set on them (via their stock price) to grow. However, I do not agree that the only type of company that survives on the stock market is one that grows year on year. Perhaps ironically, one example of a company that does not set growth as an objective is Berkshire Hathaway. Warren… Read more »

arebelspy
arebelspy
13 years ago

I’ve been on Prosper since it opened just over a year ago (Prosper’s been open for about a year and a week, my one year anniversary was 3 days ago). I have $25,000+ invested, and over 1400 posts on the forum. As you can tell, I’m a big fan of Prosper. 😉

If anyone is genuinely interested in this, check out the forums: http://forums.prosper.com/index.php

There’s a trove of knowledge there, and if you have any questions, send me a pm on there (same name, arebelspy), I’d be glad to help out.

-arebelspy

arebelspy
arebelspy
13 years ago

As I posted in the comments on the earlier Prosper post: “I’ve been on Prosper since it opened just over a year ago (Prosper’s been open for about a year and a week, my one year anniversary was 3 days ago). I have $25,000+ invested, and over 1400 posts on the forum. As you can tell, I’m a big fan of Prosper. 😉 If anyone is genuinely interested in this, check out the forums: http://forums.prosper.com/index.php There’s a trove of knowledge there, and if you have any questions, send me a pm on there (same name, arebelspy), I’d be glad to… Read more »

Meaghan
Meaghan
13 years ago

Regarding Kiva (in response to Matthew’s post further up the thread): I don’t regard my loans through Kiva the same way I would regard loans through Prosper (which I have not participated in). Before I started loaning through Kiva, I was donating a certain amount to charity every month. Now, I split that money in half- half goes to the charity I used to donate to, half goes to loans through Kiva. It’s not an investment, no. But it’s not supposed to be. To me, it’s a way of making a difference that is highly personal- instead of sending it… Read more »

Kay
Kay
13 years ago

This is VERY interesting. I had actually been idly wondering if a site like this could be viable and for some reason didn’t actively go looking for it. I am just starting to look at small-scale investing this year (I’m newly out of debt). Since I’ve sadly seen firsthand that startups fail no matter their leaders’ level of “confidence,” my decision to sign up and invest would depend on getting more information from Prosper and/or from a third party about exactly what happens if they stop operating. (They say on their site that the existing loans wold be overtaken by… Read more »

Kay
Kay
13 years ago

p.s. In case I wasn’t clear, my intent was to say that startups fail independently of “confidence” levels, not (of course) that all startups are doomed to failure. I got a chance to look more at the site and I’m having a mostly positive but still mixed reaction. I would really like to be able to look at overall default/failure rates (it would be okay if they weighted them by their current standards, for example eliminating or otherwise compensating for the original standards for borrowers which were more relaxed). Or rates by category (their “A,” “B,” etc. ratings matched with… Read more »

Jag Nogg
Jag Nogg
13 years ago

Cat, From my perspective, you aren’t helping anyone by lending them money at a rate of 14%. It’s more likely that you are enabling their already poor money management. Who the heck digs themselves out of debt by borrowing money at 14%??? Squished made a great point about companies and growth. Not all company growth is evil. Sometimes companies grow because they offer a great product at a fair price. Sometimes it is a life saving product. Do some research and find these companies. By the way, proper.com wants to grow aggressively and become an enormous success with insane profits,… Read more »

John Wesley
John Wesley
13 years ago

I understand your hesitancy to endorse prosper. After all, it is radically different than the tradition options. But I think once people get used to the idea and system is refined and made simpler that social lending will really take off. It just gives people on both sides a better deal by cutting out the middle man.

Duane Gran
Duane Gran
13 years ago

I see a lot of potential for micro loans, but as I read testimonies, for and against, it occurs to me that Prosper.com has been in business for a year an the standard term of a loan is three years. At this point the only loans paid in full are ones where the lender has suffered the prepayment risk. This in itself doesn’t make bearish but I would find it useful to contrast the opinions of bankers (maybe even loan sharks) with the opinions of people who have used it over the last year. The common mantra is that a… Read more »

Christian Pöcher
Christian Pöcher
13 years ago

Well, I think prosper is a very good idea. I don’t know, if it will work out for them, but still it is a great venture, which can kick the big banks out of the income chain and divert their profit to the normal people. What I really hate though, is that you only learn AFTER registration that you cannot do anything on the website, if you don’t live in the U.S. Maybe I missed it, but I read those small print legal agreements in advance and I could not find anything in there. Of course I understand that a… Read more »

squished18
squished18
13 years ago

Kay,

You may want to check the original posting by Cat. Within the posting, there is a link to a page on Prosper that shows exactly what you are looking for. The link is labelled “Marketplace Performance”. It shows the total amounts invested and total defaults over the life of Prosper (or any other time frame). It’s a great page and gives me great confidence in what they are doing. The biggest difficulty I have right now is I’m a Canadian. Gotta find a way to get my money south of the border.

squished

Tinyhands
Tinyhands
13 years ago

The supposition that public companies must grow to survive is largely based on historical fact. All too often a company’s stock will fall after posting a large gain because the market knows the likelihood of repeating such a large gain is small. In general (there are always exceptions) the purpose of the market is a positive return on investment. I don’t think that growth is necessarily bad or exploitative of workers, but there are examples where it is. I’m going to remain non-judgemental about this. I work for a company that people love to hate, believing that it is pure… Read more »

squished18
squished18
13 years ago

Duane Gran, On one hand, I totally agree with your reservations. However, there are a few indications that there is something fundamentally more efficient about Prosper than the current institutional lending system. In other words, Prosper may address a market demand that isn’t currently being addressed by corporate financial institutions, and may never be. Here’s how your typical bank works. They take your money, in the form of savings deposits, and pay you a very low interest rate. (In Canada, this can be less than 1%.) Then, they use your money to lend it out in various ways in the… Read more »

James Tharpe
James Tharpe
13 years ago

I’ve been trying to invest in Prosper for a few months now, but I keep getting outbid! Prosper appeals greatly to me, and I think it has something to do with my interest in blackjack. I find near endless entertainment in the play-by-play of blackjack, the stock market, and now Prosper. So far blackjack and the stock market have worked for me, at least a little bit. Not as a primary source of income, but as a nice little supplement. As I become more aggressive in my lending and begin winning loans, I hope that Prosper will become the same… Read more »

Martin
Martin
13 years ago

Where are all the article about or by the borrowers? Everything I have read is about or by the lenders?

Who are the people borrowing your money? What is their experience?

majeest
majeest
13 years ago

squished18: I have an unsupported suspicion that banks tend to ignore those special circumstances because they don’t want to be accused of discriminatory lending practices. Better to just blindly trust FICO’s “objective” criteria and avoid the potential lawsuits. One point I’d like to highlight, though, is your mention of car loans and mortgages. I keep seeing examples like that in the comments. Unlike a bank, Prosper’s loans are all unsecured. Because Prosper lenders cannot get a lien on a car or house or boat, they should logically always charge more than a bank for loans in which a bank demands… Read more »

J.D.
J.D.
13 years ago

I’ll see if I can dig up a Prosper borrower in the next few weeks. I’m not sure how to go about this, but I’ll bet it can be done!

Duane Gran
Duane Gran
13 years ago

squished18,

Thank you for the detailed response. As you point out, I overlooked the most obvious explanation — the loans themselves embody complex circumstances that traditional lenders don’t address. This is a believable hypothesis and I hope you are right about the potential for Prosper to work like eBay.

Lazy Man and Money
Lazy Man and Money
13 years ago

I’m a lender on Prosper and it doesn’t necessarily have to take any time at all. Unlike Ebay (at least to my knowledge), you can place standing orders for any loans that match your parameters and it bids without your intervention. I would say that I spend about 15 minutes a week on it, not a very large time commitment. If you want to sell things on Ebay it seems like a much bigger headache (dealing with shipping and all that). In the end, I think the 80/20 rule applies. You put in 20% of the effort and get 80%… Read more »

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