Loaning Money Online

[tgotch]

I just came across a site that allows private individuals to loan (or borrow) money from other private individuals.

People can loan as little as $50. The site claims the default rate is lower than traditional banks, and one can spread risk around by loaning to many individuals. They also claim a 9.49%-12.81% return.

I was just curious if anyone has done anything like this...or has any feedback on it.

Site:
Personal & Small Business Loans. Prosper.com - the P2P Lending Marketplace - Prosper

[VaCollector]

I've never heard of your site, but something similar has been quite successful and operating for some time, although for a different target I think ~ Kiva.org - Loans that change lives

(sorry, but my earlier attempt had an incorrect site listed.)

[W2R]

Is this thread on the same topic?

http://www.early-retirement.org/foru...org-25496.html

[Niko]

Quote:

Originally Posted by tgotch I just came across a site that allows private individuals to loan (or borrow) money from other private individuals. People can loan as little as $50. The site claims the default rate is lower than traditional banks, and one can spread risk around by loaning to many individuals. They also claim a 9.49%-12.81% return. I was just curious if anyone has done anything like this...or has any feedback on it. Site: Personal & Small Business Loans. Prosper.com - the P2P Lending Marketplace - Prosper

I've never tried it, but I've read a fair amount about Prosper and even spent some time looking around their site. Jonathon at My Money Blog did a nice write up about it:

Prosper.com Person-to-Person Lending Review, Part 1: First Looks » My Money Blog

[Martha]

Here is a thread about Prosper which also links to an earlier thread about Prosper when it was just starting up. You will see that I have quite a negative opinion.

http://www.early-retirement.org/foru...nue-23305.html

[mickeyd]

Quote:

9.49%-12.81%

I would demand a heck of a lot more if I were lending part of my stash to a stranger.

[Delawaredave5]

I'll bet there's a bunch of folks getting hosed on 20+% CC debt that are decent credit risks for a peer-to-peer loan paying 10-13% - and probably an attractive risk/return.

The problem is you can't separate the "decent bets" from the "knuckleheads" from reading a simple bio.

I saw one where a couple wanted a loan - and for the picture they used a pic of them holding out margarita glasses at a party.

Sure...I'll give you money.....

[Notmuchlonger]

Guess Im not too swift. But um what kind of guarantee do I have to get paid?

[brewer12345]

I think you might as well light cigars with the money.

[Caladia]

Quote:

Originally Posted by Notmuchlonger Guess Im not too swift. But um what kind of guarantee do I have to get paid?

Hi Notmuchlonger,

I registered here just to respond to this thread. I joined Prosper back in June 2006, thinking it was a great idea. Threw in $500 just to see how it worked. The answer to your question is, you do not have any guarantee of getting paid. Loans on Prosper are unsecured loans to people who, for one reason or another, have trouble obtaining credit elsewhere. If they declare bankruptcy, or just flat quit paying, you have no recourse. Prosper sells off defaulted loans for pennies on the dollar.

I just had a defaulted loan sold. The borrower's husband got laid off, and they could not afford to continue payments. The principal owed was $41.13 (out of my original $50 lent), and I got $5.43 in the debt sale. So, I lost $36 on that one. I've had two other defaults, which pretty much wiped out any profit I might have made.

Plus, it's early days yet-- Prosper has only been in business a couple of years. If we hit a recession, there will be a big wave of defaults.

My advice would be, if you're interested in learning more about Prosper, visit Prospers.org, a forum that is not affiliated with Prosper, where people discuss Peer-to-Peer lending (on Prosper and other sites).

HTH!

[old woman]

I looked at prosper too and they charge a lot to the borrowers. If their bank and family won't loan to them I don't want to either.

[73ss454]

I think this is a silly way to invest.

The only people making money are the borrowers.

[Martha]

Quote:

Originally Posted by 73ss454 I think this is a silly way to invest. The only people making money are the borrowers.

And Prosper, which charges an origination fee.

[Notmuchlonger]

Think Ill pass. I enjoy Vegas a bit more and get better odds.

[ira01]

I have been a lender on Prosper since March, with about $2400 invested. Although my projected ROI is about 8.6%, I stopped lending in October for a variety of reasons all linked to Prosper's management. Basically, the best way to summarize Prosper is that it is a wonderful concept, executed horribly due to the incompetence and arrogance of management.

There are too many serious problems with Prosper to list here, but brief review of www.Prospers.ORG, which is the largest Prosper forums, will provide anyone interested with a long list. Here are a few:

1) The default rate on Prosper is MUCH higher than advertised. Chris Larsen, Prosper's CEO has been quoted in recent news articles saying the default rate is 2.7%. While perhaps technically accurate using Prosper's narrow definition of "default," this is utter balderdash from any real perspective. Prosper only counts a loan as defaulted when it sells it to a junk debt buyer for pennies on the dollar. However, Prosper currently has such sales only quarterly, so it is not uncommon for there to be many loans that are 5, 6, 7, or more months late. Historically, loans almost never come back from being even 3 months late, so all of these loans are defaults in everything but name. Moreover, Prosper calculates its official default rate as the number of defaults divided by the number of loans, but because many loans are too new to have defaulted even if the borrower never made even the first payment (which happens far more often than you might think), this also tends to understate the default rate. So far as can be seen, the real default rate appears likely to be close to 20%.

2) One of the contributing factors to issue #1, is that Prosper's collections are anemic. When a loan turns 1 month late it is turned over to prosper's collection agency, but historically, only around 15% of loans in collections are brought current. There have been many annecdotal stories by late or defaulted borrowers on Prosper's old forums that they either were never contacted by the collection agency, or the contact consisted of an email or 2 and maybe a phone call or two. Prosper's own newly-hired VP of Collections admitted that the call logs from the collection agency showed that they were repeatedly trying to contact borrowers at the same time of day, such as between 3-5 pm, so if the borrower worked during the day, no contact was made.

3) Very little information about the borrowers is verified by Prosper. Prosper selects a subset of fully-funded listings to verify employment and income, but many listings become loans without such verification. Prosper has already had to repurchase about $400,000 of loans under its ID-theft guarantee, meaning that Prosper let many fraudulent loans through its systems. Indeed, there is one case (identified by a dilligent forum member) where one person obtained a dozen loans from Prosper under different identities. After the forum member outed this on the old forum, Prosper repurchased the loans and sued the borrower in Los Angeles Superior Court to get its own money back. However, there is substantial doubt among the lending community that Prosper tries very hard to identify ID-theft loans, because when it does, it has to repurchase them from lenders. There was one case where a different forum member conducted some excellent detective work (the borrower included enough information in the listing to enable their identity to be discovered), including determining that the "borrower" of a Prosper loan was the victim of ID-theft from other creditors, and he actually spoke with the NYPD detective investigating the case. The forum member gave all this information to Prosper, including the name of the detective, and for months Prosper apparently did nothing (the NYPD detective later told the forum member that he had NOT been contacted by Prosper). Only after a major firestorm errupted on the forum about this, did Prosper repurchase the loan from lenders (after it was about 10 months old, as I recall).

3) Although Prosper has funded a number of fraudulent loans, it has also cancelled a number of legitimate loans, apparently through incompetence. One such loan involved the brother of a well-respected Prosper lender and very active forum participant. After claiming that faxed doduments were illegible and then that Prosper couldn't open a .pdf file, it cancelled the fully-funded listing with no opportunity for the borrower to resubmit the documents. There have been many other Keystone Kops situations involving Prosper's verification, including one case where Prosper's telephone system apparently couldn't connect to an 888 number (the employer of a borrower), so the loan was cancelled, even though the Prosper employee was able to reach the company on his personal cell phone.

4) Related to issue #3, Prosper's customer service is terrible. Often, they let the phone just ring and ring without answering it. When you send an email, the response is often irrelevant boilerplate. Lenders used to provide a lot of Prosper's customer service for free on their old forums.

5) Prosper's advertising is highly misleading in many ways, if not downright fraudulent (specifically including that "9.49-12.81%" ad, which is discussed in several threads on www.Prospers.ORG). They overstate interest rates in ads directed to lenders, and understate them in ads directed to borrowers. Prosper was caught once having photoshopped a screen shot of an actual listing in an advertisement about the rate (they changed the actual rate to something more beneficial). Also, Prosper has repeatedly sent out mass email ads featuring borrower and lender testimonials that were quickly proven to be false. After the first time, Prosper admitted that it hadn't verified the facts claimed by the person, and said it would do so in the future. But whoops, they promptly did it again (in a different testimonial) in the next ad.

6) Prosper used to have a vibrant community on its official forums, with about 400,000 posts. These forums were an amazing learning experience for lenders, so that new lenders could avoid the mistakes of their predecessors. Prosper banned me from the forums and from lending (although I had already publicly announced that I had stopped lending due to prosper's mismanagement) because I sent a bunch of PM's to new lenders alerting them to the existence of Prosper's own official forums. Then, the day before Thanksgiving, Prosper deleted its entire forum with no notice, in an effort to hide the truth from new lenders. It then replaced the old forums with a super-moderated version that is completely useless (every post must be approved before being posted, which often takes days even when the moderator lets it through, which is rare except for cheerleading posts).

7) When another forum member made an archive of the old forums available on www.ProsperReport.com, Prosper had its lawyers send a threatening letter seeking to take the domain away on baseless trademark, unfair competition and cybersquatting grounds. Undoubtedly, Prosper figured this person would cave in and take down the site. Instead, he retained a lawyer from Public Citizen, who responded to Prosper's letter by explaining how Prosper's claims are entirely without merit. Both letters are posted on the site. Prosper has yet to respond.

(8) Prosper has also misappropriated thousands of dollars of lenders' money by charging its servicing fee on loans that were more than a month late, contrary to Prosper's own legal agreements. This too was discovered by yet another forum member. Prosper admitted that its action was "in error," but so far has not returned this money to lenders despite having promised to do so months ago, and it has not yet stated whether it would pay interest on this wrongfully taken money.

The above issues are really just the tip of the iceberg. If anyone is considering lending on Prosper, do your due dilligence. Read www.Prospers.ORG, and check out the actual performance of lenders on www.LendingStats.com. For example, you will see that looking at ALL moderately seasoned lenders on Prosper (those with >20 loans and >6 month average loan age), the median projected ROI is a mere 4.49% as of yesterday. That is less than the 4.5% E-Loan is offering on its FDIC-insured, 100% liquid savings accounts. And the tax treatment of Prosper loans is also worse (for one thing, you have to pay income tax on the servicing fee that you pay Prosper due to the way it is collected).

Caveat lender!

[ashtondav]

Over here in the UK we have ZOPA.com.

So far (2 years) i've averaged 7%, have 400 borrowers and had one default. Their credit checks are very rigorous so quite unlike Prosper! (Just what is it about Americans and their love of all things sub-prime?)

So far it works for me and is a useful diversifier for about 2% of my assets.