Archive for the 'Prosper.com' Category

Prosper.com 4% Lender Promotion

Prosper lender promotion

As we posted earlier, Propser.com runs these promotions from time to time.  The current promotion is for this weekend only.  We here at BYM continue to believe these aren’t really a good thing in the long run.  We would prefer they raise rates or raise the bar for borrowers to qualify to fix imbalances between borrowers and lenders. 

The details are available here.  Remember to read the fine print:

The promotional period for this offer begins on Friday, April 22, at 7:00 PM PDT and ends on Sunday, April 24, at 11:59 PM PDT. To be eligible, investments must be made manually on listings posted to http:// www.prosper.com/invest/individual_loans.aspx, after the listing has appeared on the page. Only eligible investments during the promotional period that become funded Notes before the payout date will be considered “invested”. Invested funds can only qualify for one cash back promotion; in the event that a given investment qualifies for two different such promotions, then the investments will count toward both qualification thresholds, if applicable, and the lender will be paid the higher of the two rebate amounts. All rebates will be paid within 60 days of the date that your bid is placed. Investments made by automated plans are excluded from the promotion.

Markets work! Prosper.com raises some rates

The timing of this is perfect.  It was just a few days ago that we posted on Prosper.com 3.25% “cash back bonus”.  We also opined that the reason for Prospers need to do this was a simple imbalance between loan demand and money supply.

Here is what we said on April 13th – “On a side note, I personally would prefer that Prosper increase the asking rates when these imbalances occur.  The entire point of a market is to balance risk with time with interest.  If there are too many borrowers and not enough lenders then the rate is simply too low. Just my $0.02.”

Well sure enough, Prosper has raised rates for AA, A and B borrowers.  It isn’t by much and that is good, but in this authors opinion, it does help balance the risk vs. reward equation.  In fact, I had stopped funding AA Prosper loans all together because the returns were just too low given the risks.  On top of that, with rates likely to rise over the next few years, I wasn’t very excited having my money locked up for 3-5 years for 4 to 5%.

If you are a borrower, I believe these new rates are still indeed reasonable and fair.  If you have great credit, getting a fixed rate loan for 3 to 5 years at 7% is not bad at all.  This move also brings Prosper.com more inline with its #1 competitor LendingClub.com

Here is a snippet from Prosper’s news letter:

“…we have increased rates in our AA, A, and B Prosper Ratings.  Yields on one-year, three-year, and five-year loans for new borrowers are now 1.0% to 1.5% higher.”

 

Prosper.com 3.25% Lender Promotion is back

Prosper.com runs these promotions from time to time.  It appears this happens when there is an imbalance between the number of borrowers and the number of lenders.

Front what I can tell, LendingClub doesn’t seem to do these and personally I don’t know if I am a fan of them.  While I certainly try to take advantage of them when I can, I should caution everyone to not get too excited.  First, they only work on the “Featured” listings.  This includes AA through E and HR.  Don’t assume because it is “Featured” it is any less risky.  Second, this is only 3.25% of the principal you invest.  So if you loan $25 you will get $0.81 back.  This means you still have the other $24.19 still at risk.  Now, the principal due is still $25, so if the loan is paid in full you get the full interest, principal and bonus money.  When you do get the bonus, it shows up as “Miscellaneous Activity”

On a side note, I personally would prefer that Prosper increase the asking rates when these imbalances occur.  The entire point of a market is to balance risk with time with interest.  If there are too many borrowers and not enough lenders then the rate is simply too low.  Just my $0.02.

Here is the fine print:


This offer is only valid for as long as it appears on the Featured Listings Page (http:// www.prosper.com/invest/individual_loans.aspx) (the “Promotional Period”). Prosper may terminate the offer at any time in its sole discretion. To be eligible for the offer, investments must be made manually on listings posted to the Featured Listings Page while the listing appears on the Page. Only eligible investments during the Promotional Period that become funded Notes before the payout date will be considered “invested”. Invested funds can only qualify for one cash back promotion; in the event that a given investment qualifies for two different such promotions, then the investments will count toward both qualification thresholds, if applicable, and the lender will be paid the higher of the two rebate amounts. All rebates will be paid within 60 days of the date that your bid is placed. Investments made by automated plans are excluded from the promotion.

Cheers,

This posting is provided “AS IS” with no warranties, and confers no rights.

Prosper.com Competitors 2011

[Updated 5/13/2011]

Whether you are interested in using Prosper.com to either lend money or borrow it you may want to understand what other options there are out there.  If you want to read more about my thoughts on Prosper.com go here.  The following is my list of peer-to-peer lending sites.  I am listing this from the point of view of a prospective lender.  I personally have only used Prosper.com and as such I cannot speak to the merits of the other sites listed.

Prosper.com Competitors

  • LendingClub.com – The closet thing to a US-based competitor to Prosper.com.  They have done approximately $240M in loans (about $20M more than Prosper).  What is impressive is that LendingClub has done this in only 4 years (started in 2007), while Prosper has been around since 2006.  This site has a good breakdown of the differences between LendingClub and Prosper.  LendingClub allows larger loans and requires a slightly better credit score.
  • PeerForm – These are the new kids on the block and are still in beta… the beta is “closed” so I am not able to really learn much on what it means to be a lender or “investor” for them.
  • Non-US Based Sites:
  • Kiva – This is like Prosper / LendingClub but focuses on loans to 3rd world nations.  They have funded approximately $204M in loans.  I don’t fully understand the mechanics, but they appear to be a broker that actually manages the relationship with “field offices” that actually manage the loans.  They have metrics on how each field office does.
  • Microplace.com – This is a P2P lending company owned by PayPal.  They are a “competitor” to Kiva and also focus on loans to the poor.  Once nice thing is that their minimum amount invested is $5 less than Kiva.
  • Loanio – This was the 2nd US-based competitor to Prosper.com.  It was launched in late 2008 and now apparently is closing down for a quiet period.  Frankly, I don’t see much here to get excited about.

There is another class of service out there that simply manage direct lending.  I haven’t researched any of these yet.  One of them is LendFriend.me, they basically act as the middle man so that friends or family can lend money.

Cheers,

This posting is provided “AS IS” with no warranties, and confers no rights.

Prosper.com Results for 2010 and 2011

I recently posted my results from Prosper.com which hold micro loans from 2009, 2010 and 2011.  I also posted a bunch of links on Prosper.com I had found interesting.  Based on feedback from a commenter, here is a more recent list of links:

  • Prosper.com Official comments on 2006 loans (January 2010) – Basically an open letter on Prosper’s blog that argues against The Big Money article on Prosper.com that claims “39% to 54%” losses.  This has a great chart that shows the drastic improvements in loans originating in Q3 2009 (which is about when I got started).
  • Prosper.com Comments from Report Your Complaint.com (June 2010) – Not a happy customer and the commenter’s are pretty negative as well.  No comment though on the years and types of loans they were investing in.  I will note, I have a feeling a lot of people invested heavily in C, D and E loans.
  • Prosper.com Boasts of Lower Loan Loss Rates (September. 2010) – Summary of a press release and results in the next bullet.
  • Prosper.com actual results (all loans) from July 2009 to June 2010 – (June 2010) – This is a really good breakdown and essentially shows an average return of 10.43% (almost exactly what I am seeing on my portfolio).
  • Prosper.com Results for 2007-2010 loans (Nov. 2010) – This person posted his full term results for loans originating in 2007 and reinvested through 2010.  He only saw a return of about 1%.  However I will note, he didn’t diversify enough IMO (investing 5% of his capital into each loan) and he focused too heavily on lower quality borrowers with 30% invested in E or lower and 45% in A or higher.
  • Prosper.org – Prosper.com / LendingClub.com Forum and Community (Active) – Ran across this, looks like a really good community, wiki and more.  The forum has a recent post with people providing their ROI, if you want recent results you are looking for “post quiet period results” (June 2009).  Here are two I found: 15.8%, 8.43%.  Results with an average age of 300-400 days will show you loans originating in 2009 after the quiet period. On portfolios with average ages of 800-1000 days you will see the returns are much lower, usually 1-4%
  • LendStats.com (Current) – Probably the single best place for real-time up-to-date stats on most P2P lending sites.

After looking at more recent results and figures, I think it is obvious that loan quality definitely improved after June of 2009 quiet period and re-launch.  Of course so did the overall economy.  Finally, it is very important to diversify your portfolio.  Since I started with an initial $2000 investment, I have never invested more than 2% of my total portfolio in any one loan.  Most of the reviews I have read are from people that are investing 5%, 10% even 20% of their capital in individual loans and they are upset with poor results.  This is just nuts.  With 5-20% of your capital in a single loan, one or two defaults can wipe out all the interest you have gotten and one or two more can give you negative returns.  My advice, if you are only going to invest $1000 or $2000, limit yourself to NO MORE than $25 per loan; no matter the score.  A big mistake is to say put $25 in a bunch of E loans and then $100 in a AA loan thinking it is “safe”.  You could get lucky, but the interest in the AA loan won’t offset the losses in the E loans and if the AA loan defaults your screwed.

Cheers,

invest, investor, investing, lending

This posting is provided “AS IS” with no warranties, and confers no rights.

Prosper.com – Good links to read

Having recently gotten more active in Prosper.com and blogging about it here and here, I wanted to do some digging around the web and see what others are saying.  The following are some of the better articles I have read:

  • Why Prosper.com will fail (June 2006) – Obviously, 5 years later Prosper has not failed, but its an interest read.
  • Why Prosper.com will succeed (June 2006) – Written by the same guy as above, another good read.
  • Wikipedia (Current) – The section on “Cash position and going concern status” is particularly interesting.  Long story short, Prosper is operating at a loss and plans to raise additional funding.  This is definately should be a concern to lenders.  This of course is one of the risks I raised in my previous post.
  • Prosper Blog note on the sale of bad loans (May 2008)
  • Google Chrome Extension for Prosper.com (January 2011) – I found this interesting.
  • Prosper.com Review Circa 2007 (March 2007) – One thing I have seen time and time again is that the overall quality of Prosper.com results have improved in recent years.  If you were a lender in 2006, 2007 or 2008 you probably lost money or broke even.  More recent loans seem to be doing better.  Of course all hell was breaking loose in 2007-2008 in the world of finance.  Time will tell if my 2009-2011 loans perform better.
  • Lending Club Review (Sept. 2010) – It is interesting to read how others are doing on Lending Club.  This post covers tips on loans to avoid.

Cheers,

Prosper.com Continued – Can you earn a living using Prosper.com?

I noticed that several people found my last post by searching for “Can you earn a living using Prosper.com”.  I didn’t exactly answer this question in my last post and thought I would give it a go.

The answer isn’t really Prosper.com specific, as much as it is a question of what income you need to live on and what rate of return you can get?  Prosper certainly provides the opportunity for you to earn rates of 5 to 30%, but the default rates increase as the rates and credit worthiness of the borrowers go down.  If I were to truly try to live off the interested earned via Prosper, I would be conservative and plan on getting only a 9% return using a well diversified portfolio of loans.

Before we start, let me explain the basic mechanics of how this works:

  1. You need up front capital to invest.
  2. You loan the money out for 1,3 or 5 years.
  3. The borrower pays you your principal and interest monthly, with the the interest front loaded like any standard loan.
  4. The money is deposited into your Prosper.com account.  If you needed this money to live on, you would have to withdrawal funds monthly.

Now, let us breakdown the numbers and see if we could actually earn a modest living using Prosper.com only.

Let’s assume the following:

  • You have a $250k nest egg to invest
  • You invest in a well diversified portfolio of loans that average 9% return (including defaults)
  • You invest all the money up front on day one (hard to do by the way)
  • All loans are for 3 years
  • Monthly you leave the principal in your account and only withdrawal the interest to live on – thus “earning a living”

In this case, you would roughly earn the following in interest:

  • Year 1 – $19,416 in interest
  • Year 2 – $12,289 in interest
  • Year 3 – $4,492 in interest

Obviously, even if you lived a modest life and had your car and home paid off, trying to live on an average of $12,000 a year would be a bit tight.  If we up the initial investment to $500k we get the following:

  • Year 1 – $38,833 in interest
  • Year 2 – $24,577 in interest
  • Year 3 – $8,985 in interest 

This is clearly better and yields you an average income of $24,000 a year.  Of course after taxes you would only end up with about $20k.

In both scenarios, we have not spent our original investment.  This is key, because that is the capital on which you will want to re-invest to sustain your earnings into the future.

If this is truly going to be your only source of income, you will probably want to reinvest the principal each month.  This effectively makes you on the lending end of an interest only loan, as the principal is continually re-loaned back out using the same 9% return / 3 year / full diversified plan.  Theoretically this means that your interest earnings will not drop over time and instead will remain consistent.  The results would then be:

  • $250k starting investment
    • Year 1 – $22,500 in interest
    • Year 2 – $22,500 in interest
    • Year 3 – $22,500 in interest
  • $500k starting investment
    • Year 1 – $45,000 in interest
    • Year 2 – $45,000 in interest
    • Year 3 – $45,000 in interest

This brings us into the range of a salary one could more comfortably live on.

While that seems all fine and dandy, there are most definitely risks.  Here are just some of them:

  1. This assumes you have $250k or $500k just sitting around and you can make the initial investment
  2. Putting all your eggs in one basket (Prosper.com) is a risk in and of it itself.  Prosper.com could go under, be forced to restructure, who knows.
  3. The economy could go in the tank and loan defaults could spike.  This happened to Prosper back in 2006 with large amounts of loans going into default.  The result was that on average you might only see returns of 4% or potentially even slightly negative.  If this is your only source of income you would find yourself in a tough spot.
  4. Interest rates may drop in the future.  Prosper interest rates have dropped at least once since I have been using the service.  So your future returns may not be as good as 9%.
  5. Each month you will need to reinvest approximately $6k or $12k into new loans.  There is a very real risk that there may not be enough borrowers with the terms, rates and credit scores you need to maintain your 9% average rate, level of default and diversification requirements.  If you are not able to fully reinvest into an ideal new set of loans, you will see slippage in your monthly income.
  6. Add to these risks, all the other risks I listed in my previous post.

In closing, I think the answer is “yes you can earn a living using Prosper.com” – but this is based on a number of risks and a large number of assumptions.  It is nice that the rates of return of Prosper would at least allow you to entertain the idea of earning a living, with banks only offer 1-3% for 1 to 7 year CDs, earning a similar amount of interest to live on would require a signifcantly large amount of initial capital (Think $2M+).

Cheers,

NOTICE: This article is not to be construed as investment advice. Past performance is not necessarily an indicator of future returns. Investing in Prosper.com may result in the loss money.    This information is provided “AS IS”, without warranty and confers no rights.