So, what do you think of prosper.com?

In My Humble Opinion
1

A couple other threads have mentioned this website, but I’ve seen no thread dedicated to it.

Propser.com is a website that is set up as an eBay style site where ordinary people can lend money to borrowers.

The rates and terms are arrived at through an auction, where say, I’m willing to loan so-and-so $X at Y%.

Each borrower has a credit rating that is based on an actual credit-check. The credit rating essentially reflects the default risk of that class of borrower (AA, A, B, etc, like bonds).

The website is connected with collection agencies.

Personally, I find this to be a pretty interesting idea. I’m sure that some borrowers see it as a chance to be loaned money where no one else will do it, but ultimately, it could just be a place where borrowers can get better rates than banks will give them, and lenders can use it as an alternate investment vehicle for their money, presumably with yields better than bonds.

Currently, the interest rates are enticing for lenders. You can lend money to AA borrowers at 9-10%. Obviously that must reflect the lender’s unease with the accuracy of the borrower’s rating, and the newness of the concept, and not the rating itself.

Your opinion?

2

Like you said, it’s an interesting idea. I’ll be curious to see if it pans out, and what effect it might have.

3

Is the loaner’s money guaranteed?

if not, there’s no way in hell I’d give my money to some stranger. There are so many scams out there, and this seems like a great one.

I give my money to a stranger who for some reason, comes to the internet site for money. Credit check or no, unless the liability/risk is picked up by the website owners (and maybe it is, I’ve not looked), someone will figure out a way to get a $20,000 loan for a car and disappear.

Roll the dice, but don’t be surprised that Mr. X has defaulted on his loan. And then what do you do?

4

[QUOTE=kurahee]
Is the loaner’s money guaranteed?

if not, there’s no way in hell I’d give my money to some stranger. There are so many scams out there, and this seems like a great one.

[/QUOTE]

No, but that’s exactly the same risk any corporate lender makes when you open a credit account or apply for a mortgage. That’s why we have credit bureaus and whatnot.

I’ve been poking around the site and it actually looks kind of interesting; you can loan as much or as little as you want. Technically you aren’t a lender, but a loan purchaser. All the actual loans originate at prosper.com.

I think I’ll try it out and lend someone $100 or so. I’ll pick someone with a high credit rating and low debt to income ratio who already has a proven payment history. Worst case scenario, I’m out $100. Best case scenario, I earn a whopping 7% or so.

5

I love the idea. I haven’t had the courage to actually loan any money on it yet, but I think it is a great idea.

6

[QUOTE=kurahee]
Is the loaner’s money guaranteed?
[/QUOTE]

Of course not. That’s called a savings account. And if you’re happy earning 2% on your money. . .go ahead and open one.

Right now, the returns on lending are great. . .9-10% on loans to people with AA credit ratings. Historical defaults rates of .2%. By the time this site becomes trusted, and becomes a part of the public consciousness, no way you’re going to get that (well, unless interest rates in general are that high).

If I really had the stones, I’d move a real chunk of change over there. As it stands, I’ve got a couple hundred in transit as we type. I really like the concept of it. . .it’s applying a free open market to lending. To me, that’s a concept whose time has come.

7

[QUOTE=Trunk]
Of course not. That’s called a savings account. And if you’re happy earning 2% on your money. . .go ahead and open one.

Right now, the returns on lending are great. . .9-10% on loans to people with AA credit ratings. Historical defaults rates of .2%. By the time this site becomes trusted, and becomes a part of the public consciousness, no way you’re going to get that (well, unless interest rates in general are that high).

If I really had the stones, I’d move a real chunk of change over there. As it stands, I’ve got a couple hundred in transit as we type. I really like the concept of it. . .it’s applying a free open market to lending. To me, that’s a concept whose time has come.
[/QUOTE]

If it works, I agree, it’s another way to invest. And maybe a good way. Better than Enron stock (or at least, no less risky).

However, I am curious as to what kind of risk the average investor is willing to stomach.

Some of you are talking about $100 or $200 dollars. OK, get 7% instead of 2%. That’s 7 dollars instead of 2. Is it worth the risk of losing your $100 for 5 bucks? I don’t know.

The reason banks can survive defaulted loans is because

  1. they have depositors which provide some constant income stream;
  2. they have insurance;
  3. They can (supposedly) evaluate risk;

So, prosper.com does all the hard work for you, and you reap the rewards? What is their cut? Sounds to me like a great idea for the guys that created prosper.com, because they have no risk. And as a borrower, I may want to look there for a great rate. But as a private loaner? I don’t know.

Perhaps instead of talking out of my butt, I’ll actually go over to the site and see what it’s about. That’s only fair.

8

[QUOTE=kurahee]
If it works, I agree, it’s another way to invest. And maybe a good way. Better than Enron stock (or at least, no less risky).

However, I am curious as to what kind of risk the average investor is willing to stomach.

Some of you are talking about $100 or $200 dollars. OK, get 7% instead of 2%. That’s 7 dollars instead of 2. Is it worth the risk of losing your $100 for 5 bucks? I don’t know.
[/quote]

If the risk of losing $100 is sufficiently low, it’s worth it for the $5. That’s the whole point of risk/return. Practically speaking, $7 vs. $2 is nothing to most of us.

$100 is just a number to get your feet wet with. I’m not prepared to risk thousands of dollars right now. The people who are prepared to do that might see actual, substantial returns from their investments. Or they might get burned.

You can’t make investment decisisons based on worse case scenarios, though. You just need to calculate expected values, and hope that you achieve them, or better.

I can survive defaulted loans because I have a constant income stream.

Banks can get insured against a loan defaulting, but they don’t really need to. That’s just part of the cost of lending. Also, banks don’t really do unsecured loans. That’s another reason these rates are so high. They’re unsecured.

As to (3). . .the banks are using pretty much the same service as prosper.com to evaluate risk. My mortgage company is using third-party credit-checkers to get a sense of my risk.

A thing you’re overlooking is that bank’s loans are basically diversified. However, at prosper, you’re able to diversify, too. If you have $1000 in your account there, you can lend $50 to 20 different people.

Propser.com takes the risk of STARTING THE BUSINESS. This isn’t some guy selling used sneakers on eBay.

Prosper also takes a cut of the loans. Like 1% off the top from the borrowers, and .5% from lenders.

I’d be interested in hearing from potential borrowers in this thread. . .

9

[QUOTE=Trunk]

Propser.com takes the risk of STARTING THE BUSINESS. This isn’t some guy selling used sneakers on eBay.

[/QUOTE]

Well, I’ll give you that. But what’s the cost to them, really? Other than footing the bill for the transaction site (ala ebay), they don’t seem to have any risk. So, if this takes off, I’d like to have a few shares of prosper.com in my portfolio.

You are right about the risk/reward thing with $100. My point was that you weren’t going to make real money that way. So, you have to invest (loan) thousands. That’s different for different people.

Sounds to me like you have your mind made up. I have to say, from what I’ve read in this thread, the idea does intrigue me. But don’t be surprised if your money goes to buy some guy’s computer in Nigeria. :eek:

I would also not be surprised to see eBay getting involved in this if it’s viable. It would just be essentially a product extension for them.

10

[QUOTE=kurahee]
Well, I’ll give you that. But what’s the cost to them, really? Other than footing the bill for the transaction site (ala ebay), they don’t seem to have any risk.
[/quote]
Starting a new web-based business is an incredibly risky venture. I seem to recall a lot of press about it four or five years ago.

True, but irrelevant. You aren’t going to make a whole lot of money investing $100 in the stock market, either. Or in traditional bonds, or a savings account. But a 7% return is nothing to scoff at.

I am tempted to throw a few hundred at Prosper and see how it does, but I’m not convinced that it’s not much more risky than it seems. First, there’s no long term data at all for the default rates. Prosper’s only been going a few months. A significant number of those asking for money appear to be financially inept. They’ve run up their credit cards and are now seeking a lower rate to consolidate. I’ve seen too many statistics that show that the most likely outcome is for them to go right back out an run up those cards again. And when it really comes to crunch time, and they’ve got bills from Citi, Chase, or some other huge bank and from this little web startup, I can’t see the funds flowing.

11

Waaay too risky for me.
If Joe Borrower decides to default what is my recourse? Unlike a bank I can’t afford to pay lawyers and collection agencies money to make Joe pay up.
And is this even a loan that gets attached to your credit rating?
If not, why would Joe care if he pays you back or not? He’s got his cash. Defaulting isn’t going to hurt his credit rating. He’s in the clear.

Lend my money to a stranger over the internet for 10%? That’s just a risk I’m not willing to take. Sure, investing in the market you can lose money. But your more likely to lose 10%, not 100%.

12

Hampshire, most of your concerns are addressed in the FAQ. Prosper is partnered with Experian, so the defaults certainly do go on borrower’s credit rating. And the have three collection agencies partnered to use if the borrower doesn’t pay.

I just took another look at Prosper, and I was disturbed by two trends I hadn’t seen before.

The first is that the borrowing “groups” seem to have become little microbusinesses in and of themselves. The original idea of the group was that people who actually had a real connection with each other would group together and thus gain some credibility (and a reward for that) by virtue of keeping each other in line. The groups seem to be dominated by names like UtopiaLoans.com, which appear to accept all comers in hopes of getting a little bit of the rewards.

The second is the number of people who are borrowing money to “reinvest” it. Here’s the group page of one such group. Even the name is misleading, as taking on loans and loaning out for higher risk is not arbitrage. Some of those taking on the loans professed that they would pay them back, but at least one clearly said that her ability to pay back the loan was contingent on the performance of other loans she made. Great! All the risk and none of the gains :rolleyes:.

13

Hmm. Wonder if the other side of fractional reserve banking - the holding of assets - can be sanely implemented using this system. Every man a bank? Stranger things have happened.

14

[QUOTE=iamthewalrus(:3=]
The first is that the borrowing “groups” seem to have become little microbusinesses in and of themselves. The original idea of the group was that people who actually had a real connection with each other would group together and thus gain some credibility (and a reward for that) by virtue of keeping each other in line. The groups seem to be dominated by names like UtopiaLoans.com, which appear to accept all comers in hopes of getting a little bit of the rewards.

[/QUOTE]

This is pretty much the same pattern as ‘real world’ banking went through. First you had individual lenders, then you had mutual cooperatives, then you had joint stock corporations that you bought into. The second group - the ‘reinvestors’ could potentially vanish if the system was expanded to support asset holding, and thus, fractional reserve banking.

I would expect that as the system grows, you would have a small number of large lenders - either individuals, or most likely, entities like UtopiaLoans - that are selected by the market as being successful operators, who have decently large cash reserves, and who don’t make too many loans to high-risk individuals, but have low percentages. On the other end of the scale, you’ll have a large number of one-man operations that loan small sums of money to high-risk individuals, at usurous rates. The system, in other words, grow according to a power-law distribution. Just like practically every other new system.

15

[QUOTE=iamthewalrus(:3=]
Starting a new web-based business is an incredibly risky venture. I seem to recall a lot of press about it four or five years ago.

[/QUOTE]

Oh, come on. Risky? Sure. But this isn’t like they decided to enter the US auto market and build a factory, hire thousands of workers, and hope that they break even in 10 years. This is an internet business, technology-heavy, but I wouldn’t think the start up costs are insurmountable. Obviously, they aren’t.

It’s here.

16

You all are discussing this as possible lenders…I’m going to try and experience it as a borrower. I just applied for a loan through prosper.com under the name kittenblue45. We can all watch to see whether anyone will bid on a loan for a high-risk case like me who has a steady, full-time job and just wants to get back on a stable footing. And if 60 of you would like to risk $50 and bid on my loan, feel free! I’ll try to give a daily update on the process.

There were a few things that concerned me about the credit rating they did. I don’t know if their questions were all fact-based or if there were some trick ones in there designed to confirm your identity. For example, they said that their records indicated I had applied for a car loan in September. They listed four companies and asked which one I had received financing through, or I could check “this does not apply”. That was fine, and correct. But they also said their records show I applied for a mortgage in 2004, and asked which company I had financed through, or again, “does not apply”. Now, since I’ve never applied for a mortgage, this worries me. Was this a trick question to confirm I’m really me (because only the real me would know I’d never applied for a mortgage) or has someone been accessing my credit? Since I had my wallet stolen a few years back I’ve worried, but I’ve always been to much of a weeny to pull my credit report, and I’ve relied on my sucky credit to protect me from fraud. Now I guess I’ll have to get to a computer with a printer and do that.

17

[QUOTE=kittenblue]
But they also said their records show I applied for a mortgage in 2004, and asked which company I had financed through, or again, “does not apply”. Now, since I’ve never applied for a mortgage, this worries me. Was this a trick question to confirm I’m really me (because only the real me would know I’d never applied for a mortgage)
[/QUOTE]

Most probably. That sounds like the usual kind of security questions that the credit bureaus ask when you pull a report. If you’re worried, go and get your credit report from all three agencies and make sure they’re accurate.

18

I guess you can’t search on a name, so here’s a link instead. So far, no activity.

19

I just heard about it today. I’m tempted to try out a small amound (one or two hundred bucks) just to see what happens.

20

I’m intrigued by this idea. I’m going to be watching your auction, kittenblue. Unfortunately, you’ve been ranked as a high risk loan, and you are starting your bidding at way below what other loans with that rating are at.

While you were filling out the application, did it say anything about having an option to NOT take the loan, if you were fully funded? Were there limits on what you could/could not/had to do? Upper/lower loan amounts, interest rates?