One Year Review: My Prosper Lending Experience

It has been some time since I have opened my Prosper account. Finally, I logged on a few minutes ago to transfer out money again because I want keep my account free of cash since the SEC cease and desist order against Propser and the quiet period have increased the possibility that Prosper could fold. I have been worried about the default rate since that order. The SEC actions combined with all the talk on the internet of how many loans on Prosper go into default probably trigger some people to feel stupid for actually paying on their Prosper loans despite the obligation and the impact to the credit score.

So how are my Prosper Marketplace P2P loans fairing? My loans’ average loan credit grade is an A minus so I have not been chasing 30%+ low-credit-score loans. Currently, I have three late loans out of 16 loans, so 18% of my Prosper loans are late.

Update: See the bottom of this post for an update. From the time I drafted this post until a few days later, another loan is now late.

According to Eric’s CC, my estimated return is NEGATIVE 4.4%. LendingStats estimates that my Prosper ROI is between negative 4.9% and negative 9.8%. Below are the screen shots to capture the point in time statistics of my Prosper return.

Prosper Update January 2009 from

LendingStats Prosper Loan ROI Update January 2009

I must thank the unofficial Prosper forums. Despite occasionally being a bit caustic, the members there have gathered enough information and been passionate enough in their opposition that they prevented me from losing more money on the Prosper Marketplace P2P Lending platform because I probably would have waded in a little faster without their commentary.

If you are thinking about P2P lending, read the advice to new lenders.

How is your return on investment with Prosper? Are you happy with it?

Before I had time to take all the screenshots, write up a description and click the publish button on this post, a fourth of my Prosper loans is now late. It will likely to continue to go downhill from here.

Prosper Lending Portfolio Update (Jan 12, 2009)

Prosper Lending Portfolio Update (Jan 12, 2009)

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  1. Tom (42 comments.) says:

    That’s tough news.

    Luckily I just had an early payoff. That’s my fourth A+ borrower that paid his loan back early. I’d much rather take the pre-payment risk than have a loan go late or default.

    I hope things don’t get worse for you (or me).

  2. Ah, I am disappointed, but not horribly surprised after seeing the late curves that Fred posts. THe longer they go, the more loans that become late running all the way up to about 38% of the loans on average. I thought staying on average A- would help avoid the problem, but it does not look like it.

    How are your loans doing?

    You did some analysis of pre-payments and I ranted about pre-payments. ;) I still don’t understand why someone would go through the hoops of taking out a Prosper loan only to pay the whole thing back in less than two months.

  3. Byron says:

    I have been using Prosper Since June of 2007. Currently I have 44 Loans at approximately an initial investment of $50 each. My Credit Score Borrower Average is C-. My current rate of return as listed on ECC is as follows:
    Portfolio Performance
    Avg Interest Rate (unweighted): 25.53%
    Avg Interest Rate (weighted): 25.66%
    Experian Estimated ROI: 19.94%
    EricsCC Estimated ROI¹: 22.31%

    I have only one loan late, 98% of my loans are on time.

    I have seen the rants on Fred’s and I fully believe that in order to generate a high return many lender’s have failed to take the time to do a detailed statistic dive of key determining factors to use to select loans. The same lenders are quick to reference Prospers propaganda rates of default and return to use in order to make there decision. Prosper and Lending Club both provide all the statistical data needed to make informed decisions. Also, it must be remembered that once a statistical understanding is set, one will require a minimum of 30+ loans all of the same $ value in order to achieve a sample portfolio that drives in accordance with the statistical population. Besides statistics people need to take the time to think about the “credit cycle” that most people go through – Many A borrowers are young and have not gone through a full cycle…usually when this happens their scores quickly drop. My experience has been that as much time in investigation has to be spent on an A rated lender as on an E.

    I also use Lending Club. I have 78 Loans, 0 late, and I am generating a 11.6% return. NOTE: separate statistical models must be built for each specific site.

    Feel free to comment or ask me questions at byronheadrick [(at)] aol [(dot)] com.

    Editor’s Note: I modified the email address to try to keep Byron’s email from being picked up by email sucking spam bots.

  4. Holy smokes Byron. That is a great return — especially when you consider that you have pulled it off cross platform.

    What about the lake of age of the average lending club loans? Wouldn’t that make it difficult for a model to predict what is going to default.

    By the way, when I started lending w/ Lending Club, the site was nearly brand new. They had not even started publishing the stats yet at the time.

  5. Mark B (1 comments.) says:

    I am interested in seeing what key variables Byron is looking at. Could you tell us those?

  6. Lender says:

    Why should prosper shut down just because some lenders were stupid with thier money and are taking a loss? I have almost exclusively lent money to bad credit +20% loans and I have never even had one late. I am generating a 20.47% average rate of return on over 50 loans. Have some common sense about who you are lending money to and there is no problem. I have seen some postings that I would not lend $1 to that have tons of people bidding $50 and over. They deserve to lose thier money just like the banks have.

  7. Some people made some really bad moves — possibly even stupid. Many others did not. Most of my loans are better credit risks, but I have had several of them go bad — enough to make the estimated return negative on my Prosper portfolio.

    It was not stupidity in general that caused Prosper to shut down. I am not calling a Prosper a ponzi scheme, but would you not shut down a Ponzi scheme just because it was only idiots who invested? Ponzi schemes are closed because they are illegal. The government’s case is pretty clear in the Prosper case, but I still think that they were heavy handed.

    Did I personally know what I was getting into with Prosper? Yes, so I am not complaining for myself, but I know much more about finance then the average person. Prosper did not explain the risks well and used very young loans to inaccurately estimate average returns to investors.

    I had to do research well outside of Prosper to find out about the risks. When Prosper users started to uncover the risks they purged the forums and banned negative posts causing so much ill will that they created a small army of haters. Instead, Prosper should have been focusing on operations — loan validation and collections — rather than trying to manipulate bad press. I think the feds did the inevitable and that Proper was doomed due to poor execution. In fact their rate of member growth had already reached a significant inflection point before the feds stepped in.

    Back to your Prosper return though… I think that you are mistaking extreme good fortune and luck with intelligence. Here is why I think your are just lucky…

    If you search all the lender portfolios who have loaned on more than 20 loans, only 26 of them have a higher return than you claim. That is 26 out of 19,355 people. That means only 0.13% of people have that return or higher estimated per (I use 20 ore more loans because there are a handful of people who have 34% interest rate loans to one or two people who are still current so they totally throw off the statistics.)

    And if you further limit the report to loans older than six months, only 17 out of 18,764 have the return you are claiming. That is 0.09% of lenders.

    Please post your profile name for all to see and then go into your prosper account and add to your profile page “I posted my Prosper name to prove to PLP that I am a lending master.” I still will doubt that you have the master formula due to it likely being a statistical outlier, but maybe you can convince someone else.

    By the way, Lending Stats actually estimates ZERO people with more than 50 loans have the return you are claiming. Are you using a different measure?

  8. Steve says:

    I am a borrower who has a loan with Prosper. It originated August 21, 2007 and has been providing 24% interest to the lenders. There has never been any late payments. This August will make 2 years of perfect payments to the lenders. I am seeking more money. If interested contact me at NHLguy(at)comcast(dot)com.

  9. Rich says:

    As Steve suggested, some of my best borrowers have been the highest risk i.e.,29% while most of the defaults have been in the A avg. range, so I am glad someone has the brains to use statistics to make money. With all the intangible variables involved, IMHO Einstein would not fare much better, so my hat is off to anyone whom has made big $$$ w/ Prosper.

    I have 19 defaults out of 81 loans, and since I reinvested all the P & I, I will be lucky to recoup a Break-even. Prosper seems to have taken down all the analytics and charts we had at one-time, but maybe that is because I live in Indiana and cannot loan any longer.

    I am going to try trading the Notes at Lending Club and see if the loans are screened better that at Prosper.

  10. A Personal loans guy(new comment) says:

    It seems like a lot of people have been concerned about prospers stability but i really think they are doing great. I have done some reading and it sounds like prosper has made some internal changes and is actually stronger than ever!

  11. David(new comment) says:

    Prosper is a joke, way too many defaults. Even the A graded borrowers default, I have lost so much ( % ) on that platform that I take every penny that comes back out of Prosper and send it into Lending club where my return is much more stable.

    Prosper’s platform is a joke, and I will never go back to that handout website.

    I want to invest, not donate to charity.

    LendingClub is the best investment for social lending.

  12. Ralph(new comment) says:

    So far I’m loving Prosper. I started October 2009 with $500. I lent the entire 500 to 15 different loans. What most people fail to explain is that there is a compounding affect.

    Each month I get paid from the loans I reinvest into more loans. I now have a total of 19 loans with my original $500.

    In short…I invested $500 and yet have $680 dollars worth of loans. Thats smart money.

    I just deposited another $1000 last week. My goal is to make at least $300 a month short term and $2000 a month long term. Just 5 months in and I’m pretty happy having 25 loans and seeing a 16% return ($30/mth est).

    I don’t think I’ll deposit anymore and just reinvest what the payments coming in. Remember the compounding affect of reinvesting. Plus you can always sell the note if you want out.

  13. Kim(new comment) says:

    wow. It’s nice to finally find a web-site that isn’t pro-prosper. I only “invested” in loans that were highly rated according to prosper and 9/14 of my loans defaulted. Prosper is a joke, a BAD one.

  14. Roche(new comment) says:

    The Prosper loan setup is riddled with so many basic flaws that it makes me wonder about the IQ of those who created it. One of the most basic problems is that the length of the loan does not vary according to the size of the loan and the interest rate;all loans have only the one option of a 3 year term – this is just absurdly stupid and completely lacking in common sense. One of the easiest ways to protect yourself from a defaulting loan is simply don’t bid on any loan which is for more than $6,300;this equates to a monthly payment in the low $200s at most. The other easy way to protect yourself from a default is to avoid the E and HR loans. If you are going to invest in C and D loans then put at least half of the money you are going to invest in these loans into buying C and D Notes on the note trading platform that have a 6 month current payment record. Returning to basic Prosper flaws,one of the most important things they are missing is loan default insurance. All borrowers should be required to have at least $250 on deposit as default insurance in addition to being charged X amount per dollar borrowed in order to fully cover the amount they are borrowing in case of a default. The “X amount” will vary according to the total amount of money being borrowed through Prosper (all loans) versus how much of this amount is in defaulted loans. Lender need assurance that if a loan defaults that they will receive all of their money back. Another basic Prosper flaw is that they punish the very people that they depend on most – the lenders. Lenders should do only two things – lend and collect monthly payments – that’s it. Prosper charges lenders fees which cut into their profits;borrowers should pay all the fees – they want the money so they should pay to get it – not lenders paying a fee so that borrowers can borrow some money from them – that’s just ridiculous. There also needs to be a minimum bidding amount based on the loan size;allowing someone to bid $25 on a $25,000 loan just doesn’t make any sense – $125 which is .5% of that amount is more logical. And speaking of loan size,does Prosper really need to be offering borrowers the option of borrowing up to $25,000? This amount,I believe,is too high for a person-to-person lending site. The average loan on Prosper is in the $6,000 range so a maximum loan amount of $16,000 would be more than sufficient. The pictures placed on Prosper loan requests are yet another problem;I’m not going to bid on a loan just because a person puts a baby,kid(s) or family picture on their loan listing. Anyone gullible enough to bid on a High Risk loan with a cute baby picture deserves to lose all their money and get smacked upside the head. The only picture that should be on a loan listing is a picture of the person who wants to borrow the money or a picture that is directly related to the purpose of the loan. There are numerous ways that Prosper could be improved but the management seems to be content with the flaws. Prosper has issued $200 million in loans and the next $200 million will no doubt take far longer unless they take action on improving the way they do business.

  15. Rich(new comment) says:

    An update from last July 1st, I now have 35 defaults out of 81 loans at Prosper. Prosper is just a wealth re-distribution site IMHO.

  16. Ken(new comment) says:

    I have invested in lending club, and I’m still upset about their screening process. They verified this borrower with his income, credit rating in the 700′s, been at his job for over 4 yrs. all verified by LC. 2 months into the loan and the guy skips, LC says they can’t find this guy? Disappeared of the face of the earth, could not provide any info, etc. Smelled fishy, worse than the docks
    and LC atty. says there’s nothing he can do?? I wanted to know if this guy was made up,or created to make a loan for 20K, and nobody’s the wiser that he may be somebody working at LC, who just got a 20k bonus. Be careful!!!! To me LC is at fault for verifying this info, and now this guy has vanished??? What’s up with that??
    Who’s to say this can’t happen?? Prove to me this guy is for REAL LC, since you verified this info, not he can’t be found?? Bullsh*t,
    someone is LYING!!!! So before you put money into something you think will have ROI, make sure you know who you’re doing business
    with!!! LC is governed by the state of Calif. not the SEC, so with
    Calif. in turmoil, GOOD LUCK finding somebody to investigate LC or its operation. 256 people participated in this loan, and not ONE person tried to sell it??? All of this SEEMS very ODD??? Someone was
    pulling a fast one at LC. By the time anybody looks into this, the paper trail will be gone or corrected to justify the loan as a default. When you have new innovative ideas out there, there’s ALWAYS someone trying to get a PIECE, and cover their tracks. There
    I’ve ranted ong enough, JUST be AWARE of what CAN and probably WILL
    happen. You take $25 from a bunch of people, that sh*t adds up fast,
    but $25 to one person is nothing. So WHO’S watching the HEN HOUSE??
    The WOLVES ARE!!!! So be safe, and put your money in the bank! It’s
    guaranteed to be returned. This is like playing CRAPS and the way the economy is going snake eyes are coming up regularly.

  17. Tony(new comment) says:

    I have been a borrower of Prosper since 2006 with nothing but good experiences up until now,I was just recently funded for my 3rd loan so I thought… After a couple days I received a post card to verify my address which I did,then a couple days later they asked me to verify my income which I did,I’m still waiting for a response.. My rating is a D which is also weird because I have good credit and I’ve never missed a payment on my 2 previous prosper loans,I also was never asked to verify anything with my two previous loans. All the verification should be done prior to even posting a loan in my opinion. Then I hear about people who get funded for the first time without verifying anything,here I am been with them since 2006 and now they decide to bust my balls! Makes no sense to be funded for a loan and then you have to go through all the verifying process.

  18. Elliot(new comment) says:

    I would be very interested on an update on this. Peer-to-peer lending has fascinated me for some time. But knowing exactly the pitfalls of investing is near impossible…. I do hope it’s gotten better since you posted this.

  19. Tony(new comment) says:

    To update my previous post,I was finally funded for my 3rd loan with Prosper after verifying my income with a pay stub,they told me they tried to call my work to verify my employment got no answer, that’s because they called on a Monday I’m in the Restaurant business and that’s the only day were closed. So all in all my Prosper experience has been a positive one as a borrower besides the somewhat high interest rates for people with average credit. I would personally recommend them to anyone just make sure your credit is in good standing or you will get killed on interest rates. They pull Experian.

  20. Sharon(new comment) says:

    I took out several notes with prosper almost a year ago, November 2010. I’ve had one loan DEFAULT out of 12. That is less than 10%, I don’t think that is bad at all. I did a mix: of 6 notes had great credit, 3 were high risk, and three in the middle. I don’t check up daily and see who is late, I DON’T give a crap about late as long as I get my fees, interest and principle.


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