Anyone looked at Prosper for microloans?

[advisorgarage]

Anyone looked at Prosper for microloans? Interested in people's experience of Prosper as a way of funding a startup launch?

[jasaunders]

I have invested on prosper, never borrowed.

[advisorgarage]

What's your experience as a lender?

[jasaunders]

Well it's been pretty good. I only started about a month and a half ago and have only invested a few hundred so far, but it is very easy to use and after doing some research I am expecting annual returns of about 12-13% from a pretty safe portfolio. I plan on investing a lot more in the coming months.

[Caladia]

Hi AdvisorGarage,

I registered for these forums just to answer your question.
I joined Prosper more than a year ago, so am fairly familiar with it.

Couple things. (Well, maybe more than a couple!)

1. It would be hard to find lenders on Prosper.com right now because the big lenders from early on have stopped lending due to poor returns (defaults start rolling in after 3-6 months) and dissatisfaction with Prosper's business model.

2. Lenders are leery of loans for startups, in light of past history (high default rate).

3. Previously, borrowers could make their case in Prosper's forums, and explain their business plan to lenders in more detail. However, Prosper has changed its forums to a fully-moderated format that is so slow as to be virtually useless, so most of the still-active lenders no longer visit them. (If you do want to try it out and make your case, you might consider visiting Prospe rs. org, a forum site that is dedicated to discussion of Peer-to-Peer lending, both on Prosper and elsewhere.)

4. From what I've heard from the business-oriented borrowers, Prosper's customer service is not geared to dealing with business loans. The CS reps have trouble answering any question that is not in their script, and since businesses loans tend to be unique, CS just can't deal. There have been several business-borrowers whose loans were canceled at the last minute simply because they didn't fit the Prosper mold.

If you do decide to give Prosper a try, be sure to keep things as simple and straightforward as possible.

HTH!

--Caladia

[funkyvega]

hey caladia..

how good is it as an investor?

I've browsed the site quite a bit, and i see a lot of loan requests for people trying to pay off their debt. as well as many requests for startups.

Is it safe investing i these kind of people? What is an estimated default rate for average people on there?

[Caladia]

hey caladia..

how good is it as an investor?

I've browsed the site quite a bit, and i see a lot of loan requests for people trying to pay off their debt. as well as many requests for startups.

Is it safe investing i these kind of people? What is an estimated default rate for average people on there?

Hey Funky,

Based on the numbers so far, the default rate on Prosper is about 20% across the board. Now, that may improve over time as lenders get more educated and careful. My own sense is that it will get worse as the meltdown in the credit markets worsens. Bank of America is reporting that defaults on its credit cards are up 200% from last year, and of course we all know what's happening with mortgages. Keep in mind, Prosper loans are unsecured. If a borrower decides to just run off with your money, there's not a lot you can do.

[rogercbryan]

This is what I love about these forums... I had never heard of this site.. thank you

[ira01]

hey caladia..
how good is it as an investor?

Hi,

I also registered here just to answer this question (although now that I'm here, I may look around a bit). I began lending on Prosper in March, and put in around $2,300, having 49 loans in my portfolio. 5 have paid off in full (generally in about 2 months), 1 is 1 month late, 1 is 2 months late, 1 is 4+ months late, and 41 are current. My projected ROI (using the methodology that is generally accepted as the best one available) is 8.43% as of today. That is not bad, but given the high level of risk involved, the illiquidity of Prosper loans (once you're on a loan, you're stuck for 3 years unless the borrower decides to pay off early or default), an unfavorable tax treatment, Prosper's servicing fee (currently 1% on A-HR rated loans), and a not insubstantial idle time penalty where your money earns 0% while being transfered to/from Prosper, while you find loans to bid on, while those listings run, and until the loan originates while (if) Prosper does post-funding verification of the borrower. The prevailing wisdom is that borrowers also tend to increasingly run into financial difficulties after the holidays (around February, when their holiday bills come due), increasing missed payments then.

The absolutely crucial thing for any prospective lender to do BEFORE lending on Prosper is to learn as much as possible from the many excellent resources available. First and foremost is Prospers. ORG. This is a wiki style site with lots of information about Prosper, a number of blogs, and most importantly, the largest forum about Prosper. Prosper used to run the largest forums itself, but right before Thanksgiving it decided to delete them without warning, attempting to hide 400,000 posts made during the preceding 1.5 years. Prosper replaced its highly useful old forums with a new version that is 100% moderated (posts must be approved in advance), that is so slow, and that lets so few posts through moderation, that it is entirely worthless. In the month or so since Prosper started its new forums, the unofficial forums on prospers.org have had about 7 times the number of posts, and virtually all the old-timers who used to share their wisdom on Prosper's forum have moved to prospers.org.

Another very useful and informative source of information is the third-party statistics site who utilize Prosper's data downloads and API to make a huge amount of information available about Prosper loans and lenders, in a very easy to use format. The two most important of these sites are lendingstats. com and ericscc .com. On these sites, for example, you can see the portfolio of any lender on Prosper, and how it is working out for them. You can also see a list of every lender (or loan) on Prosper, filtering by certain criteria, and sorting as you like. For example, using the lender list on Lendingstats, you can see that the median projected ROI (Lendingstats projected ROI is generally regarded as the best one) for ALL moderately seasoned lenders (those with >20 loans and an average loan age of >6 months), is about 5%. After subtracting Prosper's servicing fee and adjusting for the idle-time penalty when your money is not earning any interest, this is less than you can make on an FDIC-insured, fully liquid bank account at E-Loan or elsewhere.

There are also other problems with Prosper, but enough for now. I do admit that lending on Prosper can be fun, as long as you consider it entertainment, and not a serious investment where you plan to make 10% or more. Although some lenders do have projected ROI's >10%, the last time I looked (a few weeks ago), more lenders had a negative projected ROI than one >10%. Of course, YMMV.

[rogercbryan]

I just registered to be a lender. This is a very interesting site. I still have more research to do before I transfer any money in, but this looks like it could be a great resource for anyone looking for micro-loans.

[ira01]

I just registered to be a lender. This is a very interesting site. I still have more research to do before I transfer any money in, but this looks like it could be a great resource for anyone looking for micro-loans.

Unfortunately, it is a "great resource" for borrowers -- too many of whom take the money and run. Don't get me wrong -- "most" borrowers repay their loans, but "most" doesn't really cut it, considering that you earn maybe 15% or so on your good loans (depending on your risk tolerance), but you lose 100% (or pretty close to it) on your bad loans.

I strongly urge anyone thinking about putting money into Prosper as a lender to do significant due dilligence, starting at prospers .org (and no, I am not affiliated in any way with that site, except as an active member).

[globalsouth]

Prosper has really made some poor decisions that have pissed off their original lenders. I would stay away till they get some of these problems resolved...