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Peer to Peer Lending
Old 08-19-2010, 10:53 AM   #1
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Peer to Peer Lending

Has anyone seen Prosper.com? I was looking at it and it looks like a good way to get a decent percentage rate. My only problem is that, if this was such a good idea, why isn't it more prevalent?

They have a diversification program which allows you to spread out your capital over hundreds of borrowers with credit ratings according to what risk level you are willing to accept. According to them, if you choose a diversification with a rate of 12%, you will have over a 97% chance that your overall return will be greater than 7% and a virtually 0% chance of not having any return.

It sounds like a good idea, and I know everything has risk. I'm just wondering if anyone else has heard of this or used a program like this and how successful it is.

Thanks!
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Old 08-19-2010, 11:21 AM   #2
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I use Lending Club, which is similar to Prosper. I'm quite satisfied with it.
I've got about 11% annualized return so far this year.

This topic as come up before in a previous thread.

Online Lending
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Old 08-19-2010, 11:22 AM   #3
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Thanks! Didn't mean to repeat posts.
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Old 08-19-2010, 11:23 AM   #4
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Np. Just thought you might enjoy reading the previous discussion.
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Old 08-19-2010, 12:02 PM   #5
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I made about 30 loans on Prosper over a period of months three yrs ago or so.

After charge-offs I'm down about 5% on invested principle.
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Old 08-19-2010, 01:26 PM   #6
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Old 08-19-2010, 02:09 PM   #7
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I gave the 'old' prosper a try starting about 4 years back. I put in about 10k over about 100 loans. Now, all of my loans are either paid off or have been charged off. I ended up with about a 10% LOSS, which was not a bad return for lenders of my era. Hopefully collections has put a little more pressure on bogus / fraudulent borrowers.
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Old 08-19-2010, 02:23 PM   #8
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I gave the 'old' prosper a try starting about 4 years back. I put in about 10k over about 100 loans.
What kind of borrower needs $100 And what collection steps could possibly economically colect this size loan?

Ha
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Old 08-19-2010, 03:09 PM   #9
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What kind of borrower needs $100 And what collection steps could possibly economically colect this size loan?

Ha

Multiple people put up the money to the one person asking for the loan, so if the loan was $10k, anywhere from 1 person (loaning the full amount) to 400 people (at $25 each, the minimum I believe) will make the loan.

I have and am still using Lending club. I haven't put in more than $500 since I was testing it out, but so far I have had 2 loans paid back in full and the others are all on time and current. I have a 12.3% return. I should have put more money in but after reading rgarling's and Onward's experience I think it is good I didn't.
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Old 08-19-2010, 03:11 PM   #10
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Multiple people put up the money to the one person asking for the loan, so if the loan was $10k, anywhere from 1 person (loaning the full amount) to 400 people (at $25 each, the minimum I believe) will make the loan.

I have and am still using Lending club. I haven't put in more than $500 since I was testing it out, but so far I have had 2 loans paid back in full and the others are all on time and current. I have a 12.3% return. I should have put more money in but after reading rgarling's and Onward's experience I think it is good I didn't.
I see, thanks.

Ha
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Old 08-19-2010, 04:58 PM   #11
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I put about $2000 into Prosper a year ago, as a bunch of $25 loans. I've quit buying into new notes and periodically pull whatever cash I have at Prosper out.

I don't think the reporting you get from Prosper is very good, and I have seen more defaults than I was expecting. In addition, it takes them 6 days to transfer money out to you.

It won't ever pay enough at the level I'm willing to invest to make up for the hassle.

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Old 08-19-2010, 05:20 PM   #12
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Hmm, I have found these peer to peer lending sites interesting and have been thinking about joining, but maybe it's better to stay away. The experiences don't seem to be all that positive.
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Old 08-19-2010, 09:08 PM   #13
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I struggle with the logic of peer to peer lending.

If the starting point is that the borrowers have either been rejected by conventional lenders (or are being asked by conventional lenders to pay higher rates), it follows that peer to peer loans represent a fairly high risk investment and must offer an expected return which is sufficiently higher than good quality credits (government bonds, investment grade corporates etc). At the risk of overly simplifying, I would (very roughly) equate peer to peer lending with investing in junk bonds. If I want to invest in junk bonds, wouldn't be easier to just to buy a fund? Less work and better liquidity?
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Old 08-20-2010, 09:22 AM   #14
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I struggle with the logic of peer to peer lending.

If the starting point is that the borrowers have either been rejected by conventional lenders (or are being asked by conventional lenders to pay higher rates), it follows that...
IMO, you are not struggling at all. You nailed it.

-ERD50
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Old 08-20-2010, 10:58 AM   #15
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I started with LendingClub about 6 months ago and my average return so far is 17.06% without a single default yet. I know I have a ways to go before the loans are fully paid off, but from what I have found, the interest rates assigned don't necessarily correspond to the specific profile of the people requesting the loan. There are a lot of loans with people who have verified income in the $100-200k range still getting 13-17% interest. Those people are probably more likely to pay off the loan early, but I'd rather take that risk than loan to somebody with $35k income and 2 delinquencies in the past 12 months.
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Old 08-20-2010, 02:02 PM   #16
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From the other side, I'm in the process of finishing off paying a Prosper loan. I took out a $14k loan in late 2008 because I had about $4k in credit card debt, and funding my Roth for the year would have killed most of my emergency fund. It worked fairly well for me - 8.5% instead of 16 or so on cards, and funding both years Roth contribution in January while keeping my cash in had good. It turns out that I invested in the Roth before market bottom, but I was concerned about all the layoffs (not in my office fortunately) and wanted to be in a strong cash position just in case. Sadly for my lenders, I'm going to have it paid back about 1 year early on a 3 year loan, as it's my only non-mortgage debt, but it worked pretty well for all involved I think. When you're looking at the rates credit cards charge even the best situated people, there is profit opportunity there I think, between the credit card rate and what the risk rate should be if you are willing/able to look at a case by case basis. It's mostly a matter of the due dilligance being more time than the return may be worth.
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Old 08-20-2010, 04:12 PM   #17
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For those of you considering peer to peer loaning take a look at eric's credit community web site. It has some interesting data on prosper loans and lender's performance statistics.

The site: Eric's Credit Community - Prosper.com Data & Statistics
How do Prosper loans perform as they age? Eric's Credit Community - Prosper.com Data & Statistics

You can also look up the portfolio of individual lenders, although it is a bit misleading for lender's whose portfolio has aged out (like mine). Back when I was doing this, a couple of the biggest lenders were 'Pensioner' and 'MuleShoes'. Pensioner had about 1 million in loans. Take a look at how they did. I was E30.
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Old 08-20-2010, 04:20 PM   #18
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For those of you considering peer to peer loaning take a look at eric's credit community web site. It has some interesting data on prosper loans and lender's performance statistics.

The site: Eric's Credit Community - Prosper.com Data & Statistics
How do Prosper loans perform as they age? Eric's Credit Community - Prosper.com Data & Statistics

You can also look up the portfolio of individual lenders, although it is a bit misleading for lender's whose portfolio has aged out (like mine). Back when I was doing this, a couple of the biggest lenders were 'Pensioner' and 'MuleShoes'. Pensioner had about 1 million in loans. Take a look at how they did. I was E30.
Some interesting info. I only have $1k in there just to dip my toe in the water and I'm on LC instead of Prosper. If you look at the current largest lender, his return is 23.61% on $648k invested with only a 1% default rate
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Old 08-20-2010, 09:03 PM   #19
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I am more concerned about the return OF my money than the return ON my money. --Mark Twain
A man infamous for making bad investments BTW...
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Old 08-20-2010, 10:13 PM   #20
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Has anyone seen Prosper.com? I was looking at it and it looks like a good way to get a decent percentage rate. My only problem is that, if this was such a good idea, why isn't it more prevalent?
!
My questions about this service are:

(1) If the loan service delivers better risk adjusted returns than other options (like a high yield bond fund) why don't the owners put up their own capital and reap all the benefit?

(2) Can you get equivalent expected returns / portfolio diversification by investing in one of those payday loan companies like advance america (AEA)? Why would a borrower choose prosper over AEA?

(3) How much time to do you have to put in to maintain your portfolio of loans?
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