I have mentioned in the past that I really like P2P Lending, or Person to Person Lending. I had previously talked about Prosper, when they brought back lending to New York, and most recently as an alternative source for liquid cash, but I have never given details about my account. Until Today.
I always thought I would provide this information, but there were so many good Prosper and LendingClub reviews out there from much better bloggers than I, so I felt it was an oversaturation to give yet another review. But then the Samurai, himself, from Financial Samurai called me out,
Ya gotta tell me about your “love” for Prosper! I’m skeptical, since everything is so new. If you love it so much, tell me you have all your cash there making a return? One site promoted Prosper, but the site owner only had $60 bucks invested with them! lol
So here it goes Sam!
My Experience with Peer to Peer Lending
For those of you who aren’t familiar with Prosper – it is a reserve dutch auction where lenders bid down notes. Think of it is as e-bay for borrowing money. Borrowers will go through a process to prove their income, and credit score then they will create a listing. That listing will include some personal information, maybe a picture and then lenders will decide to bid on the Note. You can bid as small as $25, and you usually, and it is a reverse auction because you are bidding down the interest rate.
I have been involved with Prosper.com for approximately 3 years
When I first started using Prosper, the minimum was $50 and I funded about 20 loans:
- Six have been paid off in Full (with interest)
- Three are Charged Off
- One is Late; and
- Ten are being paid back at a normal Pace
The Late one is an interesting loan that keeps going late, but then gets caught up providing me with extra penalty fees.
Then in mid-2008 Prosper stopped allowing the funding of new notes because they went into a quiet period (much like LendingClub did) so that the SEC could approve a secondary market for notes.
I have yet to sign up for this for 2 reasons: (1) I don’t want the temptation to sell the notes and shortchange my profits; and (2) Because I am FINRA registered I would have to provide all sorts of paperwork to my compliance guy at work and I have just been lazy.
Once the quiet period was completed I started resuming my lending at the lower rate of $25/loan, diversifying my holdings. Since June 2009 I have funded 13 different loans; 2 have which been paid off shortly after their creation and the remaining loans are current.
Being a couple years wiser (not wise, just wiser) I figured if I am going to lend through Prosper I needed a plan. So I only loan to those borrowers who claim their need is to consolidate debt, and fully explain their goals, objectives and how they plan on getting there. I take into account their prosper rating (a derivative of their credit score) and the interest rate associated with the note.
Total Return on Prosper
Luckily, Prosper provides me with an easy screen with all my stats:
As it can be seen I have invested about $1,400 over 33 notes (21 are active, 1 is in Late Status). I have received $778 of premium payments, $141 of pure interest payments, and have charge offs in the $80 range. This leaves me with a total of $550 or so in loans, $55 in profit. Since Prosper was out of commission for 18 months or so, every time I had a build up of cash I withdrew (up to $265).
So, have I made money? Not anything to be proud of, yet. I am currently reinvesting all payments and investing another $25/month. This has lead to a new loan being funded at a rate of 1.5/month. Will I ever drop a lump sum into Prosper? No, but I am comfortable with my low monthly investment earning more than my savings account.