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Is Prosper.com a Good Investment?
Old 09-18-2011, 11:26 AM   #1
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Is Prosper.com a Good Investment?

Does anybody have experience with peer-to-peer investing?

Good/bad idea?

Thx
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Old 09-18-2011, 11:38 AM   #2
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Originally Posted by wanaberetiree View Post
Does anybody have experience with peer-to-peer investing?

Good/bad idea?

Thx
Is peer-to-peer investing something like lending money to people?
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Old 09-18-2011, 11:51 AM   #3
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I do some lending. A big thing I discovered is that when stuff doesn't turn out as either of the two parties hope it is really good for the lender to have security adequate to cover the loan. Another thing is that collecting on a loan takes about the same effort regardless of the amount of the loan - be it $500 or $100,000. It also costs similar amounts to do a legal collection regardless of the amount. That means a small loan costs a much greater percentage to collect than a larger one and may be less cost effective to try and collect while still being the same painful thorn in the side.

Prosper looks to me like throwing your money out there and just hoping to get it back. Fine if it makes you feel good, but if you want to make money it's best to focus on making money.
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Old 09-18-2011, 12:03 PM   #4
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For some reason I don't feel comfortable with Prosper - prob. because you are loaning to individuals. I do have a few grand with Microplace.com
https://www.microplace.com
and get 1-3% loaning to investment companies that make microloans.

The loans are backed by companies and banks that are far less likely to default than a single small business or individual (who, let's face it, must have fairly bad credit to have to ask for loans on Prosper in the first place).
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Old 09-18-2011, 12:14 PM   #5
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I have been using Lending Club for the past 12 months and have had good results with it. YMMV.

I do some research on each loan and I have very strict selection criteria. I have not had a single default or late payment yet. My net annualized return has been about 10.9%.

Despite this relative success, I will probably close my account in the next year or so. For one thing, it is getting harder to find loans that meet my strict selection criteria. It is also a lot of work to constantly search for new loans to reinvest the cash (a requirement if you want to keep the returns high).

Personally, I will reinvest the money in VWEHX and let Vanguard do the work.
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Old 09-18-2011, 02:47 PM   #6
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Is peer-to-peer investing something like lending money to people?
When you say it that way, it sounds like a bad idea...
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Old 09-18-2011, 03:18 PM   #7
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I've lent 55k-ish on Prosper. Would not do again. Last loan was made in '08 or so. I was an early adopter from launch in Feb 06 and very active on their forums. They did enough to irritate their lenders that I don't trust them as a company. LendingClub may be better, but I've mostly soured on the idea of p2p lending as a whole. Better risk/reward places to invest, IMO.
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Old 09-18-2011, 03:21 PM   #8
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I have been using Lending Club for the past 12 months and have had good results with it. YMMV.

I do some research on each loan and I have very strict selection criteria. I have not had a single default or late payment yet. My net annualized return has been about 10.9%.

Despite this relative success, I will probably close my account in the next year or so. For one thing, it is getting harder to find loans that meet my strict selection criteria. It is also a lot of work to constantly search for new loans to reinvest the cash (a requirement if you want to keep the returns high).

Personally, I will reinvest the money in VWEHX and let Vanguard do the work.
I have done the same as you, I have just over 12% return, no defaults, but I am slowly cashing out as loans get paid off. As you said the selection of outgoing loans have dropped in quality and quantity.
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Old 09-18-2011, 03:27 PM   #9
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When you say it that way, it sounds like a bad idea...
Not judging, just asking for clarification. Subsequent comments indicate this is direct lending, not investing.
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Old 09-18-2011, 04:40 PM   #10
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I've lent 55k-ish on Prosper. Would not do again. Last loan was made in '08 or so. I was an early adopter from launch in Feb 06 and very active on their forums. They did enough to irritate their lenders that I don't trust them as a company. LendingClub may be better, but I've mostly soured on the idea of p2p lending as a whole. Better risk/reward places to invest, IMO.

I was also an early lender on Prosper (July 06) fortunately I limited my exposure to a $3,000. I lost 16% which is probably about the same as than I would have done if I left in the stock market in 2006-2008.

By all accounts Lending Tree has a better business model, and both Prosper and Lending Tree have got smarter about who they lend money to. Still fundamentally the concept is that we the average Joe can do a better job loaning money than the banks. A somewhat dubious proposition made doubly so by the observation that banking is a terrifically profitable business until it isn't. As a group banks have lost of a ton of money lending over the last few years, and would have lost even more except for being able to borrow money from the Fed at near 0% rates.
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Old 09-18-2011, 06:05 PM   #11
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Originally Posted by clifp

I was also an early lender on Prosper (July 06) fortunately I limited my exposure to a $3,000. I lost 16% which is probably about the same as than I would have done if I left in the stock market in 2006-2008.

By all accounts Lending Tree has a better business model, and both Prosper and Lending Tree have got smarter about who they lend money to. Still fundamentally the concept is that we the average Joe can do a better job loaning money than the banks. A somewhat dubious proposition made doubly so by the observation that banking is a terrifically profitable business until it isn't. As a group banks have lost of a ton of money lending over the last few years, and would have lost even more except for being able to borrow money from the Fed at near 0% rates.
Man 06 lending was fun times, with so little credit information available, a lot of bidding was pretty blind. Prosper had a good community of lenders.

I was lucky enough to do slightly worse than break even. Prosper sends me reports occasionally, and somehow my 06-09 loan portfolio is like -0.94% return, but my overall is like +0.5%, despite it showing all the loans in 06-09 and none past 2009? Ey should match, but dont for some reason. In any case, I've never bothered to do an exact calculation, due to the many deposits and withdrawals I made, figuring out the internal rate of return would be a pain. I'm happy saying I lost a little money at it. Mostly lost opportunity cost, and really, it tying up my money may not have been a bad thing, considering how I lost money in 08.

In any case, I do think they've cleaned up slightly verification they do, but I just wouldn't deal with Prosper as a company personally. Overall I don't think p2p lending adds anything to an investor's portfolio (other than some slight - likely correlated - diversification) and for anyone who asked I'd say there's better places to put their money.
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Old 09-18-2011, 06:43 PM   #12
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The only loans I've done have been on KIVA. I've loaned out my original $200 a total of 7 times, - $1400 loaned. Default rate is 0.06%. Some Cambodians got me for $2.03.

If I'm in the neighborhood I'll see if I can get it back.
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Old 09-18-2011, 07:40 PM   #13
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@travelover: Ditto, I've loaned out $200 over and over but haven't lost anything yet.

But KIVA are a bit sneaky, as they keep asking for a donation whenever you reloan $25. So if you keep accepting the 15% donation default in the popup, eventually your $200 will be severely depleted. When you think about it, they are making plenty on interest as you can't reinvest until your account is repaid up to $25 again. Plenty of times I've found my account is back up to $35 or $45 before I even notice. So if all their members have a balance of up to $25 at all times, they are making plenty of profit to run their operations by reinvesting that. Just my take on things.

Also, the more research you do on these microloans, the more you realize that all the middle men are making a few percentage - except the original investors. That's why I now prefer Microplace - at least I'm getting what I would get in a high-yield savings account (1+%), and you are less likely to lose money because the loans are not directly identified with an individual. You are loaning to a bank who loans to a smaller bank who loans to an individual. A couple years ago there were plenty for 3% but now 1-2% is more common. Note that it's different from KIVA - at MicroPlace you get the interest paid regularly, and when the loan is over you get the principal back.

You also have to set your preferences to NOT roll over the loan, otherwise your 2% loan will roll-over to 0.5% (and then you have to go to the hassle of cancelling it). I think enough people complained that they eventually changed this so that that you can set loans to be repaid back to your Paypal account when their term is over, waiting for you to reinvest. I also find it easier to loan in bigger chunks, like $500 at a time, and keep the number of loans small. Makes it much easier to keep track of what is active and what is paid off.
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Old 09-19-2011, 03:40 PM   #14
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@travelover: Ditto, I've loaned out $200 over and over but haven't lost anything yet.

But KIVA are a bit sneaky, as they keep asking for a donation whenever you reloan $25. So if you keep accepting the 15% donation default in the popup, eventually your $200 will be severely depleted. ........
Ah, but I refuse to kick in any additional for the reasons that you state. If the donation is made mandatory, I'll take back my cash and go elsewhere.
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Old 09-20-2011, 09:12 PM   #15
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I have done the same as you, I have just over 12% return, no defaults, but I am slowly cashing out as loans get paid off. As you said the selection of outgoing loans have dropped in quality and quantity.
I'm doing the exact same thing. Have an account with Lending Club but waiting for the loans to get paid off a cashing out.

It was fun and interesting at first. But after awhile I almost forget I even had an account and now don't pay much attention to it. Ready to leave.
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Old 09-21-2011, 03:05 PM   #16
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I have thought about investing in peer-to-peer lending in the past (not too seriously, though). These kinds of threads make it clear how valuable the experiences people post on this forum are!
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