Prosper.com: A 6-month Review on InvestorGeeks

Prime Interest Rate & Credit Interest Spreads

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After launching in February as the first person-to-person lending site in the US, Prosper.com has seen a good deal of activity. Now that it’s been 6 months since they opened their doors, I used Google Blogsearch to see what people’s experiences were out there in the blogosphere.

I discovered that there were some very valid criticisms of Prosper. For example, the risk and time to manage these loans may not be worth the effort. Plus to further exacerbate the problem, uninformed lenders are setting lending rates at risk/return levels no intelligent investor would touch. It can also sometimes be difficult to find loans for borrowers in states that set rate limits.

Despite these valid criticisms though, I found mostly positive reviews. Since loans on Prosper are amortized over 3 years, it will take some time to see the full impact of the site on the internet community, but looking 6 months out, things seem to be pretty positive. Here are the most interesting discussions I’ve found online:

Good Feedback

Claire at Tired but Happy writes about her good experiences 4 months and 14 loans later.
Jane at Modern Mating has also had good experiences with her 20+ loans and writes about a particular breast implant she helped fund. She also wrote a piece on WSJ’s Startup Journal.
Tricia at BloggingAwayDebt has a whole category in her blog about borrowing from Prosper. You’ll also want to see Tricia’s recent interview with a Prosper lender who gave some honest and mixed reviews of the lending process.

Criticisms

A looming problem with the Prosper community is uninformed lenders who are offering rates that no sane investor would take.
Jake at 10 trades or Bust explains that getting a loan can also be difficult if your circumstances are not ideal - same as with any other lending institution.

Strategy

A number of people are refining strategies for lending such as FJ at PluggedInFinance.
CellarDoor at Prosperlicious.com, a Prosper-focused blog, writes an interesting series on how to handle default rates for lenders.
Now that Prosper is building awareness of microloans for small business, some are comparing their alternatives to Prosper, such as Erica at PaperBride, who looks at the SBA’s microloan program among others.
If you’re a borrower and Prosper isn’t working for you, perhaps you should take a look at this hilarious primer from Curtis Edmonds.

How Prosper Works
Prosper.com is the United States’ first person-to-person lending system. It matches individual borrowers with individual lenders, and allows lenders to receive better interest than they could in the bank, while allowing borrowers to face lower rates than loan providers. Proper.com claims to be highly secure, and provides collections services if the borrower defaults on their loans.

Each borrower is given a credit rating based on their Experian credit report, which lenders use to determine how much they would be willing to loan money. Lenders offer to fund part or all of a borrowers loan, and the loans with the lowest rates that meet the borrower’s target loan amount will be packaged by Prosper and transferred to the borrowers account.

Frank the Financially Savvy Atheist provides a good summary of the risks involved with lending money on Prosper, and you can also check out the lender tutorial and borrower tutorial on Prosper.com.

As a side note, U.K.-based Zopa will soon be launching in the U.S. and offers a similar model.

Tuesday, Aug. 15, 2006 by Chris

Add to del.icio.us | Digg this story | Filed under: News & Interest, Personal Finance, Credit & Loans

43 Comments Add your own Subscribe

1. Jeff | August 15th, 2006 at 9:15 am

Chris,

Great article! Despite all the growing pains we’ve encountered at Prosper, it’s only going to get better in the months to come! I can’t wait to read your one year review of Prosper and comparison between now and then. New tools and groups added to the mix practically every day! Some of the newer tools are helping limit the impact of future defaults which should improve our overall track record for investors.

Prosper onward!

-Jeff @ Fanafi Financial
2. Christian Gross | August 15th, 2006 at 3:44 pm

Interesting this reminds me of the micro-loans they give out in developing nations. http://www.gdrc.org/icm/microlending.html, and http://www.nextbillion.net/node/1589.

What I would like to see is the repayment statistics between developing nations and “civilized” nations.
3. claire | August 15th, 2006 at 4:08 pm

Great summary, and thanks for the link.

Check out this post which lists all my posts about my experiences with Prosper.

I’m looking forward to Zopa arriving in the US, mostly because after getting burned a couple of times by Prosper borrowers I’d rather not have to lend $50 to any one person if I don’t have to.
4. Lewis | August 15th, 2006 at 5:09 pm

While I wish Prosper.com well in this game, CircleLending.com has been doing something like this for a couple of years, I believe. There’s plenty of room in private waters for both to swim.
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7. Chris | October 31st, 2006 at 3:23 pm

“uninformed lenders who are offering rates that no sane investor would take.”

Lenders are able to set exactly what they are willing to bid on. No one is forcing you to bid lower than what you’d get on a CD; they know what rate they have set their bids at. I don’t see how they couldn’t. Prosper makes it clear what rate you are bidding at.

Yes, I’ve seen some of the borrowers with horrible credit wanting 10% or even less. They clutter up the site with their listings, but I’ve yet to see someone with an E or HR rating actually get a loan at those rates.

In addition, maybe a person has a low credit rating but perhaps, there are additional reasons that they are a better risk than someone else who has a similar grade. Factors such as group and group leader vetting count, as well as debt/income ratio.

If you use a little common sense you can easily filter out the borrowers who are more risky than others, too.

Also, I honestly don’t see how this is any more risky than buying stock in a company. Someone will pay $50/share for company xyz, but not lend $50? Who says the people running the company are any more or less honest than Joe Sixpack who needs a loan? ( Enron, etc.).

Finally, I’d like to point out that the fear factor of lending to a person through prosper is unwarranted. If you go to a bank for a loan, chances are they don’ t know you and chances are they don’t have anything to go on except your proof of employment/income, and your credit report. Prosper gives you nearly the same info.\

The reason eBay works is that most people are honest. It’s the same reason Prosper will work.

My risk-adjusted return at Prosper is about 10%, BTW. 80 loans currently. No defaults, had a few lates though, and several people have paid me back in full already.
8. JT | November 14th, 2006 at 11:52 am

I would like a review of a site my friend recommend it to me. I love it. Paltrust.com, however its different from prosper, because of the fact its family and friends based.
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11. Latifa | December 26th, 2006 at 10:41 am

I am very new to investing and to Prosper.com. I have been reading to gauge others’ perspectives and haven’t seen a comment about the lenders potentially laudering money through this website. I see all sorts of potential for those with “dirty” money to turn to this site as a way to legitimize it and have some type of reportable, “real” income. Does anyone care where the money is coming from and how “legit” it is? I’m not saying this will stear me away, but the thought keeps coming into my head as I’ve been reading and I am curious if anyone else has thought about this?
12. Tony | December 28th, 2006 at 3:32 pm

Old man Latifa,

WE don’t care if this happens; can’t you tell how dump enough we are by lending money to pure strangers for 3 yrs, ssn / id stolen, sound stupid? Well then why would we care about laundering money through prosper?

Prosper live on!!!
13. Jutia Group » Blog &hellip | February 4th, 2007 at 10:02 am

[…] Now that I have told you about Prosper’s personal lending and borrowing opportunities, it is probably wise to have you go to a brief review of the site. Over at Investor Geeks there is a six month analysis that includes both the good, the bad, and links for lenders on developing strategies in regards to their loans. […]
14. Ken Gentner | February 15th, 2007 at 7:48 pm

Talk about drinking the proverbial Kool-Aid! All the gushing write-ups about Prosper.com are completely misleading. I too was attracted to Prosper as a neat way to make better than bank CD rates on micro-lending transactions. It was intended as a kind of hobby requiring a few hundred dollars and a manageable learning curve. I thought I would be helping people as well by lending at better rates than they get from credit cards or personal loans at banks.

But, it turns out nearly none of this is true. After 2 months and way more hours than it takes me to manage a much larger investment portfolio on which I was able to retire, I find that Prosper is inhabited by borrowers who write tear-jerky pleadings for money they promise on both knees to repay – but from which they walk away without remorse, especially among lower credit grades. Worse yet, circumstances suggest it is the breeding ground for outright scams.

Trying to fact-check as much of the applicants speil as possible, produces evidence of bad intent: previously failed listings that mysteriously look nearly identical to current ones, but with a few details altered along with a new picture of the “rehab condo project” underway — or ka-zam, a new business opportunity for a landscaping business, when last week, the same guy wanted to buy a new roach-coach to sell sandwiches at the local factory gate. The environment certainly rewards creative writing!

I wasn’t born yesterday, and I certainly don’t expect everyone on Prosper to tell the truth, but clearly something is amiss with the borrowers – and the lenders may not be too far behind in bone-headed thinking!

Reading the Lenders Forums will quickly show frustration among the folks there to rent their money out. Prosper has existed long enough for some fairly deep mathematical analysis to have been done on the loan base. I found that default rates are much higher than the general borrowing population but, as you say, lenders – in a feeding frenzy over perceived quality – will relentlessly bid down rates below where they should go, given the quality of borrower (and the lengths of their Pinocchio-like noses). Nobody seems to know when to walk away.

My view is the whole thing’s a mess! I now have newfound respect for bank underwriters. I’ve already made some loans and tied up funds for up to 3 years, so there is no bailing out of current commitments. But, I’ll think long and hard about putting in any more cash. I doubt I’ll ever see it again.
15. John P. Abrell | March 12th, 2007 at 1:04 pm

I, am trying to start a tree service co, And i am a very good lumber jack, And at the same time to have a saw mill as well, to sell fine woods and much more .
16. Holly Mohr | March 13th, 2007 at 6:55 pm

Sorry to hear that you are having a bad time with lending Ken. I am new to Prosper. Sure, my credit isn’t great and the reason is listed. THAT’S THE POINT OF PROSPER! No one wants to listen! No everyone is honest and not everyone is a liar. That is why you can ask the borrower questions and they have a chance to answer you. BY THE WAY- the DTI is only for the person who is listed. If you are married, it does not show both incomes! You get a clue man!
17. charis | April 19th, 2007 at 5:55 am

Yes, this is good informative disscussion matter.

If you are looking for Loan in very low interest then http://cash.arranges.it can help you lots.
18. Kristen Marie | April 24th, 2007 at 2:31 am

I think prosper has its place but has to be approaced with education and understand that this is a new concept and will have some learning curves. At least there is a place to start with prosper.

I do think it can be one source of financing for people that need a second chance but you have to approach it with caution.

I think the one challenge is the loan limit amount for people looking for money for the businesses. I also think that it would be great if your business could be the lender to better deal with the profit from the loans.

There are alot of resources for businesses to get working capital which is something I am passionate to share with people.

If you are looking to become your own lender visit our website
www.money4businesses.com
Wealthy Wishes
Kristen
PS Watch THE SECRET if you have not it is amazing.
19. Everydayfinance | April 27th, 2007 at 3:00 pm

I did a piece on Prosper on my Everydayfinance site recently. I can attest to the somewhat since I signed up a few weeks ago and have done ~$1000 in loans so far. I only started with $2000, but the diversified income potential is very appealing. While I agree with the potential for abuse, there is a nice check and balance system with incentives, which is the group aspect. There are some groups which have 100% performance on their loans. If you stick with the successful groups, you may give up a bit on the return, but have a much lower likelihood of a loss. I would be surprised if anyone doing their homework actually loses money if they’re spreading out their loans. Will report back in a week or two on my personal experience once the loan payments start coming due. Until then, good luck! Dan

http://www.everydayfinance.blogspot.com
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21. Dan | June 11th, 2007 at 9:53 am

Prosper.com is going strong, well enough to now offer signup bonuses through their referral system. Personally, I’m at 13.5% with no defaults because I’ve done some basic research and spread my risk. If you want to be a lender and earn the $25 signup, you have to go through a site with a referral button. Again, great way to diversify a portfolio and with above market return rates. The way this market’s headed, this is a prudent way get a nice fixed non-correlated return. Since I don’t see a referral button here, here’s a link to everydayfinance which has the referral button:

http://everydayfinance.blogspot.com/2007/06/prospercom-referrals-for.html
22. reaklyoiak | June 18th, 2007 at 6:08 pm

Hello! Good Site! Thanks you! albcvaqkmtw
23. Rev.Dr.Carl Ray Marshall Sr. | June 23rd, 2007 at 4:19 am

I am a borrower on Prosper.com , and I am very pleased with my loan. I had the worst of credit, but was able to get the loan I needed. I am paying it back on time and re-establishing credit. My next loan will be for investment purposes;because, I just recently joined the “Million Dollar Experiment” doing the following:
I spend time each day thinking about this intention. I write it down, post it on the wall, bulletins,forums,ect; recite it aloud, memorize it, visualize it happening, sing it, express it artistically, blog about it, teach it, share it, discuss it with others, meditate on it, pray it, or otherwise put some positive thought energy behind it. I Tell God, the Universe to “Make it so”, or “Let it be so” in whatever way I feel led which fits my personal belief system. This intention (affirmation) is based on the intention-manifestation model of reality, where the goal is to generate $1,000,000 of additional wealth for each person who chooses to do the same thing I am doing (participate). Right now there are over 2000 people actively doing so right now as I write this. Here is my affirmation tool for attracting and mastering this law my intention is:

“In an easy and relaxed manner, in a healthy and positive way, in its own perfect time, for the highest good of all, I intend $1,000,000 to come into my life and into the lives of everyone who holds this intention.”

in total agape love,
Rev.Dr.Carl Ray Marshall Sr. of
Conroe.

P.S.” Following Richdad (Kyosaki) and Donald Trumps suggestions I can’t fail”. “THanks PROSPER”
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25. Eric | July 29th, 2007 at 6:39 pm

I’ve tried to get a loan through prosper but when i apply the system says i need a plus score of at least 520, but i paid for my plus score frome Experian and i have a plus score of 573. But for some reason i can’t get my loan listed. I’m not to happy with prosper.

E
26. carl marshall | July 30th, 2007 at 12:11 am

Join my team. I got a loan as an HR credit risk. With tore up credit. Its your team leader and how you word your listing Read mine. My listing is a Career Advancement Loan: Security Officer.
https://www.prosper.com/lend/listing.aspx?listingID=124837
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28. Eric | August 2nd, 2007 at 2:41 pm

For those that are already lenders on Prosper or are thinking about lending on Prosper.com, I have a couple of sites that you will probably find interesting.

The first is my Prosper.com statistics and research site. Lots of info there on everything from other lender’s portfolios, group performance, default rates, etc.

The other is a fantasy Prosper.com lending site called FantasyProsper.com. Basicly it will let you invest in real prosper loans with fake money and track your performance. Very similar to the various fantasy stock market sites out there.
29. Dan at Everydayfinance | August 4th, 2007 at 7:48 am

I’ve checked out Eric’s site and it’s pretty cool; I’ve used it for a couple purposes. Must put a lot of work into it.

Now that I’ve been at it several months, here’s the latest. I can’t say enough about the prospects. I update my site regularly with my standings as well as independant research too. My most research research article was on loan default rate vs loan amount; yielded some interesting findings.

Active loans: 70
Avg. interest rate: 15.20%
No lates, no defaults
Lender since April 2007
30. Bob Moors | August 22nd, 2007 at 5:03 pm

I would be interested in seeing the number of and amount of loans in default by group
31. retirehappy | August 29th, 2007 at 12:57 pm

Excellent article recapping the blogosphere’s reaction to Prosper, I personally think it might be a good place to put some extra cash but not something I’d plow a lot of money into.
32. moneysage.org» Blog&hellip | August 29th, 2007 at 1:45 pm

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33. The Amatureist Financial &hellip | September 10th, 2007 at 2:43 am

[…] Investor Geeks wrote a six month review (a little old) of prosper that has alot of interesting links including both good and bad reviews, and some strategy in their article “A 6-Month Review“ […]
34. Sam | November 18th, 2007 at 10:30 am

Prosper does not offer any method for lenders to liquidate and leave, other than to stop lending and wait for their existing notes to mature or default. They need to create a process for other lenders to buy other lenders notes that are not in default.

For Prosper to succeed they need to provide lenders with outside audits of the their accounts and a method for lenders to leave.
35. ProsperLenders.com | December 30th, 2007 at 8:15 am

Prosper introduced historical performance based bidding guidance for lenders a little over two months ago (Oct. 2007). IE, everytime someone bids nowadays, a little screen pops up saying “loans of this credit quality have a historically estimated return of x% - are you sure you want to bid 5% under that amount?”… even in just two months, this appears to be having a marked effect.

Marketplace data shows significant uptrends in both interest rates of funded loans, as well as very sharp uptrends in the credit quality of loans that fund. Prior to this guidance, most lenders were reliant on the overly (grossly) optimistic (Experian CC based) default projections which Prosper supplied as baseline guidance. Now that there’s marketplace performance data from a year and half of actual Prosper loans, and now that Prosper has leveraged that data and made it available to lenders, things may be set to change… or at least we’ll all revert to the mean. Either way, it’ll be fun.

Stats referenced above at: Prosper Lenders
36. Jon | January 7th, 2008 at 12:26 am

Great Article. This site can help borrowers enhance their loan listings. It also gives lenders a better prospective of prosper. There’s also a loan calculator that can help determine risk level. It’s a great site.
37. J Dawson | January 30th, 2008 at 2:38 pm

Up and coming Prosper competitors in the US are Loanio and FundMyNotes

Can’t wait to see what they bring to the competition.
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40. high yield | April 18th, 2008 at 12:51 pm

I think Prosper is here to stay. It provides us the lenders another alternative way of making money in additional to stock investing, CD, and cash.
41. Carolyn | June 17th, 2008 at 7:40 pm

I just tried prosper.com and had a terrible experience. I thought the P-2-P lending concept was created for borrowers who were traditionally disqualified by banks.

The idea that your credit score is used as a foundation for getting a loan defeats the purpose! If the entire borrowing process is based on the credit score, why bother with Prosper just go to a regular bank or loan company. I think the service need s to be tweaked in someway. If I understood that the criteria was the credit score, I would have never bothered…now I have inquiry on my credit for NOTHING!
42. Peggy Smith | June 24th, 2008 at 11:33 pm

How can Prosper, fit with a booming non profit agency? Assisting the uninsured (and all others actually as insurance doesn’t cover truly necessary supports). We served 5,000 indviduals and families (many were repeat visitors) in 2007. Website: collaborationworksonline.com

Thanks for allowing me to leave this message.
43. Lender | June 25th, 2008 at 1:06 am

Prosper is great for borrowers, but not so wonderful for lender.

http://www.prospers.org/forum/prosper_lenders_retain_legal_counsel-t8015.0.html
44. Finance Junkie | August 30th, 2008 at 5:44 pm

The author links to my website under his strategy section. More than two years later i’ve done an updated strategy which can be found at:

http://pluggedinfinance.blogspot.com/2008/08/updated-prosper-lending-strategy-tips.html

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