Make And Take Person To Person Loans With Prosper

Person-to-person lending site Prosper.com lets you take and make loans to other average citizens. Prospective borrowers register and let Propser review their credit history. They can request from $1,000 to $25,000 in an unsecured loan and specify an upper limit of interest they’re willing to pay. Then, other users check out the borrower’s profile and decide whether to fund them. You can bid as little as $50 on other people and fund multiple borrowers, spreading out the risk. Depending on the type of loan, you can earn upwards of 9% interest on your investment. The loans are for three years and there’s no prepayment penalty.

If the borrower defaults, Prosper hires a collection company to go after them. With almost two years under its belt, the site is still going strong. People on the site specify the reason why they’re looking for a loan, like paying off a medical bill, investing in their business, or paying off other loans at a lower rate. And for lenders, the average returns are nothing to sneeze at, upwards of 10%. For borrowers, there’s a 1-2% closing fee. For lenders, there’s a 0-1% annual loan servicing fee.

Looks like a pretty good setup to us. Has anyone used Prosper.com? How did it work out for you?

Prosper [Official Site]

Comments

Edit Your Comment

  1. Tzepish says:

    Crazy!

  2. jhofker says:

    Proper or Prosper? :-)

  3. Cowboys_fan says:

    Its a great idea, I hope it works. I knew somebody who tried to open a loan company and loaned money to whomever asked…Guess how that worked out! I would much rather pay interest to a person who perhaps needs it then a big bank.

  4. Zerkaboid says:

    Proper what?? I need to know!

  5. johnnyboi1016 says:

    Been using it for less than a year so I can’t comment on loan performance and returns, especially b/c my portfolio involves all minimum ($50) bids on the riskiest groups with my avg portfolio loan return above 20%. So far on any given day 10-20% of my borrowers are late, with about 2% declaring bankruptcy… We’ll see if my portfolio actually generates a positive return. Fantastic site and concept though, very user friendly and well-built with all the checks and balances you can throw in there.

  6. RonDiaz says:

    This is sort of old hat. I’ve been a member since March of 06.

    [www.lendingstats.com]

    There is a link to my portfolio as it stands. I am also a borrower. There is risk involved but I like the concept, I hope they succeed.

  7. ChrisC1234 says:

    I’m leery of something like this… I’m just waiting for fraud to become rampant at this site.

  8. howie_in_az says:

    @ChrisC1234: But Prince Mobutu just needs a month or so to get his money from the bank, why can’t you cut him some slack?

    I can’t see this NOT having scam after scam after scam.

  9. darkened says:

    To register for the website you must successfully pass credit identity verification. Sure that can be done with stolen identities but seeing as the non instant gratification factor of this site, it seems to be a very poor choice for some one attempting to pilfer from identity theft.

  10. Skiffer says:

    Yeah, these types of “social lending” sites have been around a couple years. Nice concept, and great alternative to pay-day loan places, but…

    …let’s take a bunch of high risk loans, with little to no real documentation, package and securitize it, and sell it off in little chunks to investors…sound familiar?

  11. internyet says:

    Been a member for about a year. Tolerable performance, but I’d never use it as an investment vehicle. Check the Prosper lender forums for dirt before you jump in. There’s a lot of griping about TOS for lenders.

    And, make sure you factor in defaults when deciding whether/how to invest. 20% sure sounds great, until the lender drops off the face of the earth before the first payment.

    Also keep in mind the loans are for 36 months. You are stuck for three years. Now, if someone set up a secondary market for these loans, this thing would be a lot more attractive.

    But… make up your own mind.

  12. cef21 says:

    @Skiffer: This actually sounds far worse. When loans are securitized, the “investors” are generally extremely sophisticated — large banks, hedge funds, pension funds and so on. How many individuals do you know who bought a mortgage backed security?

    But, you raise another question: why isn’t Prosper.com in trouble for selling unregistered securities?

  13. mdkiff says:

    I have been a lender on Prosper for about a year, and I have noticed that recently, a few loans that I have bid to lend to were rejected by Prosper becuase they did not pass the required checks for validation of information. So far, so good – I’ve been lending at $50 increments at anywhere b/w 15-20% interest, and had no defaults or late payments.

  14. phantomoftheopry says:

    I got a loan through Prosper a couple of years ago and it’s worked great for me!

  15. hollerhither says:

    I work with Kiva.org, which lends to small businesses in “third world” countries. (The loans are managed locally by microlenders.) For $25 a pop I’ve been helping two women in Kenya, a farmer in Bulgaria, and two shopkeepers in Eastern Europe. So far, everyone has made their payments on time, and when they pay me back, I can roll the money into another business. It’s a little different than sending $150 into the void of big orgs like Unicef, etc. — more personal.

  16. Blueoysterjoe says:

    Smart Money did an article on this site a while ago and paints a mixed but somewhat optimistic picture. Critics claim that there aren’t a lot of good loans available and that maybe dead beats aren’t as afraid of Prosper.com as they would a brick and mortar bank. If you are interested in the article, here it is: [www.smartmoney.com]

  17. 13743an says:

    This is basically the American version of micro loans which Muhammad Yunus won a Nobel Peace Prize for

    [news.nationalgeographic.com]

    There was also a story on Marketplace about it a few months ago.

  18. dsean says:

    @cef21: It actually looks like they’re not trading a “security” such that it would trigger SEC issues, but are actually engaged in microlending, which would trigger banking oversight. This is somewhat speculative on my part, though, so I may be wrong.

    It appears though, that they want to establish a secondary securities market, e.g. bundle their loans and securitize them.

    See here:
    [www.sec.gov]

  19. stanfrombrooklyn says:

    Aren’t blogs supposed to be on the “cutting edge?” This site has been around for a long time. What’s new? Reporting on this new auction site called eBay?

  20. humphrmi says:

    @Skiffer: The interesting thing is that, when it’s done right, that’s a very profitable business. The mortgage and bond / securitization markets just took it too far. But at it’s face, you take a slice of an overall risk and blend it with some higher and lower risk investments that, even with a 2% default rate, overall still make money – and if you’re good, very very good money.

  21. INconsumer says:

    yeah and how many people never see their money again? thats the number i’m worried about. i work at a high risk finance company that does a EXTREMELY detailed background and application process, and we still get screwed everyday. and thats an auto loan. let alone just a loan. even previous customers who paid fine the first go-around. you just never know.

    example of proabable transaction.

    hey my dealer (paul) is going to kill me if i don’t get his money today. oh look we can borrow from peter! and then next week borrow from john to pay peter.

    i wonder how truthful it is. ex: if i’m paul, and you owe me money, and then peter asks me how well you paid because you are asking him for a loan, and i want your money and you out of my hair……”oh he paid me excellent, i’d definatly do repeat business.”

    landlords do it all the time.

  22. kc-guy says:

    Old news? It’s news to me…and any return would be better than the 2500 hundred I loaned to a “friend” and the countless bills I had to pay for another roommate.

    Of course, investments moving south don’t have the same consequences (I’m not going to be evicted because the roommate didn’t have the rent money) so I can pick and choose with a little more discretion. I’m signing up now.

  23. Mr. Gunn says:

  24. Hoss says:

    I’ve been a lender on Prosper for a year. All loan requests are screened by Prosper. It’s a great service. I do expect that loan defaults will increase as mortgage defaults increase. Use this as a gamble — and lend small amounts ($50 min.) to lots of people to reduce risk

  25. RevRagnarok says:

    Been a lender for about a year and a half maybe… and have had two loans default. They recently changed the rules – previously group leaders would take a cut too, which gave them an incentive to have a good group or even step in and make a payment or two for slackers.

    In summary, I am siphoning all my money out (about $3K) as it is paid off – no more lending for me.

  26. BigNutty says:

    This is the first time I have heard of this site. Sounds interesting to me. $50 is a small amount to try something new and innovative to me.

  27. scooby2 says:

    Been a member for about a year now. Almost 40% have defaulted. It was neat to start with but not much more then that. My Fidelity mutual funds are doing a ton better return wise.

  28. FLConsumer says:

    I keep poking my nose in at Prosper. Love the concept/idea of it, but my business sense tells me to stay away. I make far more on a bad year in the stock market than I would with Prosper.

  29. speedwell (propagandist and secular snarkist) says:

    @FLConsumer: Just curious… Assuming a borrower of average risk (average to Prosper, I mean, not average generally), how much interest do you estimate would be worth the risk to you? I’m just asking for academic, anecdotal reasons. I’m not into borrowing.

  30. waxigloo says:

    My money blog did a review (and a note re: free $25 for lending when you sign up):
    [www.mymoneyblog.com]

    I have been using it for a few months and I am skeptical for several reasons:
    - 20% sounds nice, but keep in mind the amortization schedule and realize that you are not earning 20% per year on your initial investment.
    - Loans are 3 years and being only a few months in it is difficult to tell how things will perform.
    - Your money that is help by prosper that has not been lent to people does NOT make interest. This can be a problem when you are a smart/picky lender that wants to find a responsible borrower. Your money can sit for many weeks with no interest. They should really let you do ACH transfers at the point that the loan is made.

  31. RevRagnarok says:

    Apparently, others have been tracking me – [www.ericscc.com] [www.chessbay.net] (I am on a business trip and am not going to login to Prosper from the hotel!).

    I thought two had defaulted, only one did but another one is 4+ months late so as good as gone. And apparently I didn’t have as much money in there as I thought.

    It also looks like neither of those mirror/metadata sites have noticed that I closed out a group I was playing with a few months back.

  32. skittlbrau says:

    I have been lending on Prosper for about 1.5 years, and none of my borrowers have defaulted yet (knock on wood). I have heard horror stories though, so be mindful and remember you could lose everything.

  33. Beerad says:

    I signed up to be a lender and then quickly got cold feet and ran away before lending any money. The idea of higher returns is nice, but chance of defaulting is too great. Banks have been making loans for hundreds of years, and they have a fleet of actuaries and internal staff to make sure that they lend wisely. I, on the other hand, am reading complete strangers’ bios online and am going to somehow accurately judge what’s a reasonable risk and what isn’t? Not bloody likely. And yes, lots of diversification will help reduce risk, but it’s not going to take that many defaults to put you in the red overall.

  34. RevRagnarok says:

    @Beerad: “not going to take that many defaults to put you in the red overall” – yeah, I’m gonna have to run the numbers at tax time… write off these bad investments.

    I am sure if you stick with the good ratings you’ll be fine. You get greedy like I did (the defaulted one was 28%) and you’re more likely to hurt. However, for the ones in the high teens, they really are people trying to get [back] on their feet.

    I saw it as high risk / high yield. It’s not my retirement income…

  35. Consumerist Moderator - ACAMBRAS says:

    @stanfrombrooklyn:

    Please feel free to address content feedback/suggestions to the author of the post (ben@consumerist.com, in this case).

  36. antijamsect says:

    I guess Consumerist listens to NPR morning edition, too!
    [www.npr.org]

    …or its just a coincidence?

  37. Jamie Beckland says:

    I have been lending on Prosper for about a year. I have closed on 146 loans, and 5 are late at this time.

    If you don’t have any common sense, then you can lose a lot of money. That being said, I have made more than 10% over the past year, and as lenders scrutinize the borrowers a bit more it is getting tougher for loans to get filled, therefore lower default rates.

    You have to be willing to sift through a lot of crap – and mix up your portfolio with some AA, A, and B credit ratings borrowers to diversify.

    But, this has proven to be a great place to keep my housing fund until the housing market returns to some semblance of reality – in about 3 years, which is the length of these loans!

  38. tekmiester says:

    It’s a great idea, but don’t just jump in. Read the forums very closely. A lot of people are losing tons of money because they didn’t do research. Check out the returns of the top lenders (carrey79 and pensioner) on lendingstats.com

    The big issues is I don’t think it currently doesn’t scale well. If you put $1,000 in, you will do research and make smart loans. If you try and put $50,000 in you are more likely to take a hit.

    Also, don’t expect the returns that you see. From the time you bid on a loan to the time it closes can be over 2 weeks (where you won’t earn any interest). Also, money you have sitting in your prosper account doesn’t currently earn interest. Finally, this is an illiquid investment; once your money is in, you can’t control when it comes out.

  39. EarlCynortas says:

    Comment on Make And Take Person To Person Loans With Prosper On Prosper, I’m BR549. I have 100 loans out. My defaults are running in
    excess of profits. People tell great stories and I want to help start up
    companies succeed however, too many take the money and run. Some have been
    as short as 3 payments, several have hid in bankruptcy, some just default
    and some just pay but late. Once a borrower goes into collections, even if
    they pay Prosper does not move them back into good status so from my loans,
    I have to check all 17 in collections to see who is paying and who is not.
    Each time I have $50 in payments, I take them back out and reduce my loses.
    This will be a total wash for me that will take 3 years to wipe up.

  40. Anonymous says:

    Does Prosper prevent you from collecting on your loans personally? I’m an attorney in Louisiana and would be much more likely to loan to someone within the state if I could handle the collection process. Just don’t run afoul of the FDCPA.

    No, this is not an invitation to ask me for money :)

  41. eccsame says:

    Actually, The Consumerist recently said that this might not be such a great idea:
    http://consumerist.com/2010/01/prospercom-may-be-riskier-than-you-thought.html