There have been several threads about the peer to peer lending service Prosper. I think a few dopers were trying it out as lenders. I don’t recall any trying it as a borrower, but that could easily be selective memory or selection bias in the posters.
I found a blog post here about a person who is getting worse returns than you could get in a savings account. Has anyone else had better luck? worse?
I think that you can find nice returns if you check out each loan individually, and stick to a number you want to loan at, and prepare to be outbid often.
However, if you want to get into the territory of loaning thousands of dollars, and you want to diversify, you have to “automate lending”. That means that you can’t personally inspect each loan you’re making.
That person in that blog wrote, “Thanks to those who have been honoring their payment obligations, my Prosper.com portfolio still books a 4.4% gain even if I wrote off all delinquent loans”
I’m not sure he’s being accurate. . .“even if I wrote off all delinquent loans”. It sounds like he means, “if I wrote off all delinquent loans” and that is a worse case scenario.
One of the things that is really irritating is the “pre payment” risk. When you loan at a good rate from a good borrower, you are at risk of them paying it off early. Over time, you wind up holding your questionable loans, with your good loans paid off.
I’ve seen about a 10% return on what I’ve loaned and that’s a great return. But, I loaned pretty early on, and it required a fair bit of work to check out a loan to get returned $5 a year on a $50 loan (that’s why I say you need more cash, and a willingness to automate). Early on, I think that a general distrust of the system, and fewer lenders, led to interest rates being a little higher. I can’t seem to get returns anymore that do much better than what I expect from stocks & bonds.
Still, it’s been interesting and educational, and it seems like my loans have helped some people out (one loan was for a guy to get his breasts reduced!) They’re all still current, but I’ve found it to be just a little too much work.
I was very intrigued by the site and idea, but ultimately didn’t do anything about it.
The blog poster, it should be noted, loaned at very high interest rates (17+% avg.) to borrowers who couldn’t qualify for better rates. It shouldn’t be so surprising that many of his loans are delinquent. He was just a bit greedy, I think. He probably should have invested in mutual funds, the Dow is up over 10 points since March.