P2p lending is naked finance everyone is watching

My funds arrived to Prosper Marketplace a few days ago. I planned to jump into Prosper and start carefully selecting loans for funding. I browsed a few loans, but I have cold feet.

So I opened my blog to reflect…. Why am I nervous about bidding? I had no problem lending on Lending Clubfor a total of about $1,000 to date. So why is Prosper Marketplace different?

My trouble in starting to bid seems to come down to the openness of the market. That same openness is great for transparency. As I have read on other blogs, browsing P2P lending is voyeurism. I think it is a bit of Voyeurism and Exhibitionism.

Peer-to-Peer lending feels voyeuristic for several reasons:

  • Many loans provide interesting, entertaining, or just odd stories.
  • After browsing loans, you cannot help but to feel more secure in your own financial future because you had to read so many poor quality loans.
  • It can be fun to pass judgment on others occasionally and with Prosper or Lending Club, you can decide who receives funding and who does not.
  • Peer-to-Peer lending allows you to feel superior to others who are not as financially savvy. That is why most of them need the money.

Peer-to-Peer lending is great fun to view the financial lives of others. I like that part of the openness.

So what about the exhibitionism? I am not calling borrowers exhibitionists. I imagine many borrowers do not like revealing their financial lives in public, but doing so helps the loan fund and at a better rate. The exhibitionism statement comes from my lack of exhibitionism. Personally, I do not like being watched.

Even as a lender, every bid you make can be viewed at Prosper statistics sites such as Lending Stats and Eric’s Credit Community. Anyone can view your return on investment and all the bad loans you extended. For example, you can see Rate Ladder’s or Lazy Man’s rate of return. Both have admitted some early mistakes in their lending, so low returns do not necessarily mean that they do not have good advice to share. They, along with some other bloggers, helped in providing advice to new P2P lenders based on their experiences.

My concern about the openness is how some people use other lenders’ low rate of return as criticism or as an attempt to end an argument — like Goodwin’s Law. I have seen this technique used in the comments on several blogs and forum posts. Essentially the unstated argument is: “Your return is low (lower than mine) therefore the information you are presenting is false (not as correct as my information).” This is flawed logic.

In most markets, no one knows individual investors’ rate of return due to there being no openly available personal data. You cannot see my personal rate of return on stock market investments. It is easy for investors to exaggerate — or outright lie about — their rate of return on the stock market. People only talk about their winning picks and not the losers. In the Prosper Marketplace, you do not need to tell anyone because everyone can see all your trades. So everyone will know if I make bad decisions in Prosper lending. In contrast to Prosper, Lending Club only currently posts loan statistics, but they will likely make similar data available in the future.

I suppose that if I am going to invest in P2P loans with Prosper, I must overcome this fear of exhibitionism. Besides, I know that all the openly available lending data is positive for the market. Time to make a few bids.

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