Prosper Loans: Prosper is an online financial institution that allows an individual to make Person-to-Person loans otherwise known as peer-to-peer lending or P2P lending. Someone who wants to borrow money can place a loan application on Prosper for an amount as low as $1,000 and as high as $25,000. The loan applicant has their credit checked and other people in the United States are able to go in, review this information, and bid on the loan with funds in their account.
There is an minimum requirement of a $50 bid although a lender can bid more than this if they view the loan as a solid investment. Loan applications are filled by the collective bids of individuals who recieve loan repayments on a 3 year payment schedule. (One payment each month for 36 months) Interest rates on these loans can range from 4-29%. The potentially high interest rates appear to be attractive although it would be advisable to stay away from the majority of high interest loans as they are generally backed by a weak credit history with a high potential for default. By sticking to a reasonable lending criteria, it is quite possible to lend money at a predictable 10% rate of return to people with a high ability to repay the loan.
“We learn more by looking for the answer to a question and not finding it than we do from learning the answer itself.”
-Lloyd Alexander
I’m here to understand the basics of P2P lending with the goal of establishing a solid financial portfolio based on what I learn through Prosper lending. I have no expectations of a 100% repayment rate but have come in with the expectations that if I set my lending criteria correctly, I can facilitate a profitable portfolio of loans that will serve to provide me with a steady flow of interest/principal repayment that I can use for reinvestment or as slow streaming emergency income should the need arise.
I view Prosper as a similar model to CD laddering in the fact that 1/36th of capital investment is repaid each month. Through steady investment and by sticking to the rules that I have created during my lending experience, I can build a portfolio that allows me to increase my overally returns vs other fixed income investments.
I joined Prosper.com in early October of 2006 and allocated some of my free cash flow towards Prosper loans. As of September 2007, my investments are yielding ~$350/mth in repayments with ~$120 of this being profits that are reinvested.
My Strategy:
Lend to individuals with:
1) Credit score of AA, A, B, C, or D
2) A credit history more than three years
3) No current delinquent accounts
4) Less than two delinquent accounts in the past seven years (zero if credit history is less than five years)
5) All loan payments are reinvested
GOAL: $100,000 Loaned out at Prosper. Currently expected date of completion: ~01/01/2020
“Unless commitment is made, there are only promises and hopes; but no plans.” -Peter Drucker
Historical Progress:
12/28/06: 3.19%
01/11/07: 3.49%
01/12/07: 3.93%
01/16/07: 4.08%
01/25/07: 4.24%
02/12/07: 4.37%
02/22/07: 4.71%
03/12/07: 4.78%
03/22/07: 5.20%
04/09/07: 5.54%
04/24/07: 6.13%
05/11/07: 6.67%
06/01/07: 6.93%
07/06/07: 7.45%
08/06/07 : 8.06%
09/03/07 : 8.48%
I’m grinding til 100% and nothing is going to stop me. Once I’m up to 100% of my goal, all principal payments + 50% of interest payments will be reinvested, the remaining 50% of interest payments are going to Kiva loans.
Additional Information:
My Prosper Page
Prosper.com creates person-to-person loan site, but can it work? : Dave Taylor
Prosper: The eBay of Loans? : Robert Hof
