In an earlier post, I wrote about the possibility of bidding for loans in Prosper.com. I liked the idea of person-to person lending and the opportunity to increase the rate of return on my money to a level as high as 25%. After reading numerous posts about people’s experiences with loaning on Prosper.com, I have decided not to make loans in Prosper.com. Here’s my analysis of this investment:
- Higher interest rates for lenders, often 15-25%.
- Can loan small amounts, as low as $50.
- Groups may help keep borrowers from defaulting.
- Need to manage many small loans.
- Actual default rate may be relatively high when doing 10-20 loans. (See the experience of PFBlog.com.)
- Prosper doesn’t pay interest on money that is waiting to be loaned.
I like the idea of helping individuals. However, for the $1000 total (20 times $50) I was planning to loan, it seems to be too much effort and risk versus too low of a reward (average absolute returns of $50 to $150 per year).
This is not financial advice. Please consult a professional advisor.
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