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:
Pros
- 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.
Copyright © 2006 Achievement Catalyst, LLC
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2 comments:
You have a great blog Super Saver. I respect your opinions but I disagree with your views on Prosper. I think Prosper can be a great debt diversification tool for serious investors. I have written a few posts about borrower selection on Prosper in my blog: http://www-personal.umich.edu/~sankum/idle/
Wish you all the best with your wealth goal.
Sanjeev
Sanjeev,
Thanks for your comments and sharing the link to your blog.
I read through your posts on Prosper, which are excellent. They are the best summary and analysis of Prosper results that I have seen. Your analysis uses the entire Prosper data base versus a few people's experience.
Here are my takeaways from your posts. We both agree that Prosper is a great diversification tool and may take too much time to do the right research to get the best returns for small loans. (True for me). Your posts also had three points that address issues that I identified. First, surprisingly the best reward versus risk are the D credit rating people. Second, it is group leaders not groups that make a difference. Finally, people with no deliquencies are the overall best risk.
When I write my next artcle on Prosper, I will note how some of my concerns can be addressed and refer readers to your posts.
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