Prosper.com person-to-person lending

[obi_positive]

Anybody looked into Prosper.com to lend money. I'll admit I'm fascinated at the prospects of gaining higher interest on a 3-year investment. But if you try to lend your money at the 18%+ rates, you may be playing the lottery with the higher-risk borrowers.

A diversified system might work, where you lend a small amout to high-risk borrowers and lend more to sure thing borrowers.

After taxes and defaults, could I come out any better than the S&P though?

I know Prosper is still new, but anybody tried it out yet?

[Haku]

I saw this elsewhere, but besides the general fascination of the concept, no one I know of has tried it yet. Some say that it's too much of a crap shoot, while others think that it may be worth a try as a group to further reduce the risks.

[Ima saver]

I would not do it, if it were me.

[jmjj215]

You can diversify extremely well there. A thousand bucks could technically go to 20 different borrowers. I like the idea as it lowers the borrowing cost for debtors, and gives you a possible higher return than you would get elsewhere. Of course it has its risks. Don't underestimate the risk of pre-payment as well. What doesn't have risk though?

I have a friend who's making (this is for four months so far) an average of 21% on his money. Will it all get paid back? Wouldn't we like to know!

[TBH]

I've been lending on Prosper for a couple of months. My average return is a little under 11%. I've got ten loans. So far all payments are current. I also lead a group of library workers, which is starting to slowly get off the ground.

Rates are good, diversification lowers risk, and it's sort of fun. My biggest complaint is not actually people prepaying on their loans (altho a couple of my borrowers are doing that) it's that it takes FOREVER for funds to transfer in or out of Prosper. When somebody makes a payment, it takes something like five business days for the money to actually hit my account. And, once I bid on a loan, that takes a week or so to get all settled. Also, there are not enough lenders right now, so a lot of loans don't get fully funded. So you can bid on an attractive loan, but if not enough other people bid, the loan listing just dies.

The result is that there is a lot of time when my money is not earning interest. I'm not mathematical enough to figure out what my ACTUAL interest rate is considering all the down time, but I'm sure it's a lot lower than the 11% I'm supposed to be getting.

But still. It's a higher rate than an online bank can give. Lots of people seem to be using Prosper to get the credit card monkey off their back. I feel like I'm helping people. And it's a fun new financial toy to play with.

I talk about Prosper in more depth on my blog.

[jmjj215]

Thanks for the info Claire. It's cool that you've tried it out. I'm planning on trying it pretty soon as well.

[Ima saver]

Keep us posted, maybe more people will try it after a while.

[lrjohnson]

I'm interested in trying it too. If anyine is interested in forming a Group, or can recommend a Group, let me know.

[TBH]

I just send Jeffrey an email suggesting he start a group for Saving Advice readers. We'll see what he says. He seems the most logical person to lead it and I think it would be a great group. Lenders can choose to support different groups, and I'd certainly support a saving advice one.

Also, if you're a personal finance blogger on this site or elsewhere, or if you read PF blogs, there are two groups for PF bloggers. Go to the groups page and do a search for "bloggers".

If any of you all work in libraries or other cultural heritage institutions, check out my group:
Librarians and library workers

[CJsoccerchic]

WOW how interesting. What happens when these people do NOT pay you back? Are you SOL?

[sweeps]

I read the Prosper FAQ... Kinda interesting. Borrowers who default are subject to negative credit reporting and collections just like they would at a regular bank.

[34saving]

I suggested that to Jeffrey awhile ago . . .he doesn't think he can since he's in Japan.

[kealina]

very interesting... definately something to think about when we actually have spare cash...

[TBH]

When you lend, you have a choice of 3 collections agencies that will go after the borrower if they default. But the bottom line is that these loans are UNSECURED. Very risky. I am doing it mostly for fun, and because I like the politics of it. I'm glad I'm getting high rates, and I very much hope none of my borrowers default, but I'm sure it will happen to me eventually if I stick with this.

[obi_positive]

Originally Posted by claire

When you lend, you have a choice of 3 collections agencies that will go after the borrower if they default. But the bottom line is that these loans are UNSECURED. Very risky. I am doing it mostly for fun, and because I like the politics of it. I'm glad I'm getting high rates, and I very much hope none of my borrowers default, but I'm sure it will happen to me eventually if I stick with this.

Just another reason to diversify among different borrowers. Just like picking stocks and mutual funds.

[CJsoccerchic]

SCARY SCARY SCARY. At least with stocks and funds, it's up to a whole entire company to keep those numbers good. but you rely totally on a person's whim. Whether thye have a good concise or not, to pay you back what you have given them.. i can see there being a lot of scams going on there...

[poundwise]

I am on Prosper but I am a prospective borrower.

I like the concept. I remember there was a lot of suspicion and skepticism when eBay and other online auctions debuted. We'll see.

[jmjj215]

Originally Posted by CJsoccerchic

SCARY SCARY SCARY. At least with stocks and funds, it's up to a whole entire company to keep those numbers good. but you rely totally on a person's whim. Whether thye have a good concise or not, to pay you back what you have given them.. i can see there being a lot of scams going on there...

I keep thinking of just a few people that single-handedly brought down an entire company (though the jury hasn't reached verdict yet): Kenneth Lay, Jeffrey Skilling, Andrew Fastow, Bernie Ebbers (convicted), Richard Scrushy (acquitted I believe), etc.

Granted, prosper.com is still much riskier - but the return may justify the risk.

[Armywife]

I must admit I am curious about prosper BUT the concept is way too new to see results. There is a three year payback period in order to establish "clout" for higher end loans in that circle. If you're looking to lend something under $1000, it seems like a good idea. I guess i'll wait it out until this site becomes more popular (for now).

Hey Jeffrey, have you looked into Prosper? I'd be curious to know your input on it so far?

Barb

[jmjj215]

I just went through the lender verification process - now waiting for the two deposits...