The Case for Prosper
I signed up for Prosper, an online peer to peer lending network, in late 2006. Since then, I have invested $350 in loans in an experiment of sorts. I have been mildly successful so far and am deciding whether or not to invest more.
For those of you unfamiliar with Prosper, its a way for people to receive loans not from a traditional bank, but from a variety of individual investors like myself. Loans are “bid” on in much the same way as eBay auctions. When I like a particular loan listing, I’ll set a minimum interest rate I’m willing to accept and a dollar amount I’m willing to loan.
In this way, many investors come together with small individual bids of money to fund large loan amounts.
Of the 8 loans I have funded, 1 has been paid back early, 1 has been repurchased, and 1 is currently late. All the others are current with no late payments so far. Here is a recap of my little adventure.
1 Repurchased
This one was a mistake. Knowing what I know now, I would never have helped to fund it. It was asking for the maximum amount. Very little information in the listing and a budget that was woefully lacking. The loan never made a single payment. After more than 4 months waiting on collections, I received notice that the loan was repurchased. This is Prosper’s policy when identity fraud is involved. I’m happy to get my money back but at the same time, there is an opportunity loss having my money tied up in a bad loan.
1 Paid Back in Full
This was one of my first loans. Honestly, I probably shouldn’t of funding this loan either. It worked out in the end which I am happy about. The reality of the situation is, since the loan was paid back early, it made me the least amount of money.
1 Currently Late
I have high hopes for this one even though it’s late. Back in August this loan missed one payment. From then on, payments have come in each and every month on time. Six payments have been on time since the initial slip. However, since the first missed payment was never made up, the loan shows up as perpetually late in my Prosper account.
I have high hopes for this loan. So long as the payments are consistent, which they have been, then this will actually be my most profitable loan in terms of interest paid.
Are Current and On Time
You can see my whole profile on any one of the Prosper stat sites. These loans were made from August of last year to as recent as this February.
So far my account has done well enough. I have yet to have a default and that is the name of the game in peer-to-peer lending. When you win, you win a little but when you lose, you lose big. It takes a number of good loans to counteract a single bad one.
Is Prosper a Good Investment?
Only time will tell. Many have already conjectured but few will commit to a prediction.
So far, I have not lost any money. Given the fact that the stock market is in distress, as it has been for the last several months, Prosper seems like a good investment hedge. The big trouble comes from the fact that your money is tied up for at least three years. The stock market has had few stretches of such consistent bad performance.
Ultimately, the liquidity and consistent long term growth of the stock market trumps anything Prosper has to offer. The stock market is flexible, and has the benefit of decades of historical data. Prosper has only a few short years under it’s belt so far.
But it is Fun!
I plan on contributing to my Prosper account in the future. The main reason is that it is fun. There is a certain voyeuristic glee that comes with rifling through credit information of people you don’t know.
There are more than a few sob stories out there and it make me feel better about my own situation. It sounds bad but it is the truth. I feel good knowing that I have not completely screwed up my own financial story. Prosper is a two way street and I’m glad I’m on the fiscally responsible side.