Comments on: My money lending experiences on Prosper http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html --- a combination of simple living, anticonsumerism, DIY ethics, self-reliance, and applied capitalism Fri, 25 May 2012 19:02:53 +0000 hourly 1 http://wordpress.org/?v=3.3.2 By: Macs http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-10942 Macs Mon, 26 Apr 2010 15:26:41 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-10942 I recently decided to give this P2P lending a whirl (using Zopa & I'm in the UK, so there may be some fundamental differences to Prosper...) Quite agree with George, though, it is too risky for a significant part of the portfolio. It is by far the riskiest thing I will ever do with money, so it's not going to see more than a few percent of my funds. I'll keep it at about 1% til I've built a track record. I am willing to take some risk because I like the model of cutting out the bankers. If it pans out then I have a small part of my portfolio making excellent returns; if it totally crashes, then I've not lost more than 1%. Time will tell... I recently decided to give this P2P lending a whirl (using Zopa & I’m in the UK, so there may be some fundamental differences to Prosper…)

Quite agree with George, though, it is too risky for a significant part of the portfolio. It is by far the riskiest thing I will ever do with money, so it’s not going to see more than a few percent of my funds. I’ll keep it at about 1% til I’ve built a track record.

I am willing to take some risk because I like the model of cutting out the bankers. If it pans out then I have a small part of my portfolio making excellent returns; if it totally crashes, then I’ve not lost more than 1%. Time will tell…

]]> By: George http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-10919 George Mon, 26 Apr 2010 03:55:36 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-10919 The problem with peer to peer lending is the same with most investments: people have no idea how to measure risk. Just because people are paying back today does not mean that they will pay back in the future. People make the decision to loan based on today's default rates. But that is silly. What happens if the economy goes down and unemployment goes up? Do you think the default rates will remain the same? Probably not. They could double, triple or increase even more. They could exceed 50% or 90%. I don't know. Nobody knows, nor can accurately measure that sort of thing. So that's why I think it is too risky to invest a significant portion of your portfolio in such a way. The problem with peer to peer lending is the same with most investments: people have no idea how to measure risk. Just because people are paying back today does not mean that they will pay back in the future.

People make the decision to loan based on today’s default rates. But that is silly. What happens if the economy goes down and unemployment goes up? Do you think the default rates will remain the same? Probably not. They could double, triple or increase even more. They could exceed 50% or 90%. I don’t know.

Nobody knows, nor can accurately measure that sort of thing. So that’s why I think it is too risky to invest a significant portion of your portfolio in such a way.

]]> By: DaveP http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-9668 DaveP Fri, 26 Feb 2010 22:05:50 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-9668 I found that a couple of people defaulted right away, a couple paid it all back, and most paid back the principle, but then stopped paying when it got to paying the interest. In short, I got hosed (mostly). It's a shame, because with credit crunches and banking crises this could have been a good way for communities to raise capital. Perhaps if the lending had been more localized people would not have defaulted on their neighbors as much? Who knows. -DaveP PGH PA I found that a couple of people defaulted right away, a couple paid it all back, and most paid back the principle, but then stopped paying when it got to paying the interest.

In short, I got hosed (mostly).

It’s a shame, because with credit crunches and banking crises this could have been a good way for communities to raise capital.

Perhaps if the lending had been more localized people would not have defaulted on their neighbors as much? Who knows.

-DaveP
PGH PA

]]> By: lending club lender http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-9211 lending club lender Sun, 07 Feb 2010 01:31:08 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-9211 Looks like Prosper is very close to declaring bankruptcy. I hope lenders get some return of the principal after all is said and done. Will see how its bankruptcy affects other P2P's, like Lending Club. Looks like Prosper is very close to declaring bankruptcy. I hope lenders get some return of the principal after all is said and done. Will see how its bankruptcy affects other P2P’s, like Lending Club.

]]> By: Andy T http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-4411 Andy T Wed, 01 Apr 2009 00:01:18 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-4411 It is very difficult to out perform professional lender. However, I heard of the micro bank in developing country [Africa?] doing not bad to lend out seed money to start home base business [buy sewing machine, chicken to lay eggs, cattle for mill and etc]. It is very difficult to out perform professional lender.
However, I heard of the micro bank in developing country [Africa?] doing not bad to lend out seed money to start home base business [buy sewing machine, chicken to lay eggs, cattle for mill and etc].

]]> By: J-72 http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-2403 J-72 Sun, 05 Oct 2008 23:21:23 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-2403 When I loaned to AA homeowners with <15% dti on Prosper, they paid. When I loaned to a D who I thought would pay, she paid. When I listened to group leaders for their C,B,A people, these loans have defaulted, or are 1,2 3, or 4 months late. The person that got the best cheerleading is going bankrupt. I am glad I loaned only about $600. Unfortunately $100 went to the bankrupting person who was well-cheerleaded and posted a beautiful picture (which didn't affect me but perhaps affected the cheerleaders. The bad thing for me is that Prosper didn't yet respond to inquiries to them on the bad accounts. ID theft screwed my credit score and it is hard to fix it, emotionally, time-wise, etc. It is finally getting better, however. I greatly appreciate the Prosper lenders that helped me re-establish my credit rating by loaning to me when my score was HR (because of the ID theft). These people helped me so much. I am grateful. My loan is ahead of schedule in payments. Glad I found some of the Prosper family again,though. J When I loaned to AA homeowners with <15% dti on Prosper, they paid. When I loaned to a D who I thought would pay, she paid. When I listened to group leaders for their C,B,A people, these loans have defaulted, or are 1,2 3, or 4 months late. The person that got the best cheerleading is going bankrupt. I am glad I loaned only about $600. Unfortunately $100 went to the bankrupting person who was well-cheerleaded and posted a beautiful picture (which didn’t affect me but perhaps affected the cheerleaders.

The bad thing for me is that Prosper didn’t yet respond to inquiries to them on the bad accounts.

ID theft screwed my credit score and it is hard to fix it, emotionally, time-wise, etc. It is finally getting better, however. I greatly appreciate the Prosper lenders that helped me re-establish my credit rating by loaning to me when my score was HR (because of the ID theft). These people helped me so much. I am grateful. My loan is ahead of schedule in payments.

Glad I found some of the Prosper family again,though.

J

]]> By: Patrick http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-2290 Patrick Wed, 24 Sep 2008 16:51:59 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-2290 <blockquote> If there was a better way to weed out the bad borrowers, the rest of us could enjoy loans at the prime rate. </blockquote> There used to be a way to weed them out. It was called Debtors' prison. :-P

If there was a better way to weed out the bad borrowers, the rest of us could enjoy loans at the prime rate.

There used to be a way to weed them out. It was called Debtors’ prison. :-P

]]> By: Jacob http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-1308 Jacob Wed, 11 Jun 2008 00:46:04 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-1308 @utah tom - I used a cutoff rate based on the experian default rate + 10%. I allowed 0 current delinquencies. Debt/income < 20%. Generally 0 public records (with some exceptions in the beginning). Only $50 per loan with few exceptions. Most loans were manually screened against the most outrageous requests. You can find my stats <a href="http://www.lendingstats.com/lenders/granddanois" rel="nofollow">here</a>. You can find the stats of another blogger who is still quite enthusiastic about prosper <a href="http://www.lendingstats.com/lenders/technologyguy" rel="nofollow">here<a>. @utah tom – I used a cutoff rate based on the experian default rate + 10%. I allowed 0 current delinquencies. Debt/income < 20%. Generally 0 public records (with some exceptions in the beginning). Only $50 per loan with few exceptions. Most loans were manually screened against the most outrageous requests. You can find my stats here. You can find the stats of another blogger who is still quite enthusiastic about prosper here.

]]> By: Utah Tom http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-1304 Utah Tom Tue, 10 Jun 2008 05:56:07 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-1304 What type of portfolio methodology did you use? Was it systematic or "haphazard"? The new prosper portfolio plans allow for different criteria to be used to increase/decrease risk and returns. They are too new to have a decent track record. What are your thoughts about the changes made in collection companies? I agree there is room for improvement in all areas. I am quite new to Prosper and heed your comments, but I am still intrigued by P2P lending and think that it (like all new things) will evolve to become a reasonable investing vehicle. What type of portfolio methodology did you use? Was it systematic or “haphazard”? The new prosper portfolio plans allow for different criteria to be used to increase/decrease risk and returns. They are too new to have a decent track record. What are your thoughts about the changes made in collection companies? I agree there is room for improvement in all areas. I am quite new to Prosper and heed your comments, but I am still intrigued by P2P lending and think that it (like all new things) will evolve to become a reasonable investing vehicle.

]]> By: Jacob http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-429 Jacob Mon, 18 Feb 2008 17:40:09 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-429 @ nc broker - I minimized my float by only bidding on in loans that already were 90% funded and of course (argh) by having lots of money invested compared to the float. Still, it's kinda annoying not to be earning any interest while it's just sitting there. One could say the same about many broker accounts too though :-) @ nc broker – I minimized my float by only bidding on in loans that already were 90% funded and of course (argh) by having lots of money invested compared to the float. Still, it’s kinda annoying not to be earning any interest while it’s just sitting there. One could say the same about many broker accounts too though :-)

]]> By: nc broker http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-426 nc broker Mon, 18 Feb 2008 11:46:45 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-426 The elephant in the room is that in reality you probably made less than 8% if you count the amount of time the money was sitting in Prosper account not earing anything... like while bidding, waiting for background check... etc. Prosper should pay some nominal rate while they are sitting on our money. This must be their way of earning more money. The elephant in the room is that in reality you probably made less than 8% if you count the amount of time the money was sitting in Prosper account not earing anything… like while bidding, waiting for background check… etc. Prosper should pay some nominal rate while they are sitting on our money. This must be their way of earning more money.

]]> By: Jacob http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-354 Jacob Thu, 07 Feb 2008 15:45:11 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-354 @lulugal11 - I know .. I even know that 9 out of 10 (per year) are good borrowers. It is the bad kind of borrowers that throw me off on a tangent. I think it depends on how one enters the deal. For instance, if I invest in a portfolio of junk bonds, I expect some of the included companies to go down. OTOH if I personally lend money to another person I implicitly expect that person to pay it back. Wrong expectations, I know. At least now I know why payday lenders charge such huge interest rates. @lulugal11 – I know .. I even know that 9 out of 10 (per year) are good borrowers. It is the bad kind of borrowers that throw me off on a tangent. I think it depends on how one enters the deal. For instance, if I invest in a portfolio of junk bonds, I expect some of the included companies to go down. OTOH if I personally lend money to another person I implicitly expect that person to pay it back. Wrong expectations, I know. At least now I know why payday lenders charge such huge interest rates.

]]> By: lulugal11 http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-351 lulugal11 Thu, 07 Feb 2008 15:10:36 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-351 I only have one loan on Prosper for the $50 because 1. I just don't have money to lend like that and 2. I decided to use Lending Club instead. The reason I went with Lending Club is that I did not get funding on Prosper. Now I have an average credit score but I have never been late on a payment or missed a payment on anything. Part of the reason for the low score is my short credit history (I was a cash only person for a long time) and I have low limits on some cards. I ended up doing balance transfers to take advantage of the lower interest rates so I have a high utilization rate. This threw off some Prosper lenders but on Lending Club people were more open. My loan is current on the payments so I decided to put in some of my own money and be a lender on Lending Club. I have six loans for $25 each, one is current on payments and the other 5 just got funded so they are in review. I am sorry that you lost money, but just remember that there are still good people out there who will pay back their loans. I only have one loan on Prosper for the $50 because 1. I just don’t have money to lend like that and 2. I decided to use Lending Club instead.

The reason I went with Lending Club is that I did not get funding on Prosper. Now I have an average credit score but I have never been late on a payment or missed a payment on anything. Part of the reason for the low score is my short credit history (I was a cash only person for a long time) and I have low limits on some cards. I ended up doing balance transfers to take advantage of the lower interest rates so I have a high utilization rate. This threw off some Prosper lenders but on Lending Club people were more open. My loan is current on the payments so I decided to put in some of my own money and be a lender on Lending Club.

I have six loans for $25 each, one is current on payments and the other 5 just got funded so they are in review. I am sorry that you lost money, but just remember that there are still good people out there who will pay back their loans.

]]> By: Jacob http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-179 Jacob Fri, 18 Jan 2008 01:06:02 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-179 @ RG - What is needed in my mind is a better way of evaluating borrowers. Prosper seems to demonstrate that Experian scores are not useful since people seem to default at a greater rate than predicted - at least for my 200 loans. The peer to peer aspect does not seem to change the effective interest rate either. Maybe if there was a better way to hold people accountable to their promises. Another idea might be to have people put 20% of the money down that they wished to borrow. @ RG – What is needed in my mind is a better way of evaluating borrowers. Prosper seems to demonstrate that Experian scores are not useful since people seem to default at a greater rate than predicted – at least for my 200 loans. The peer to peer aspect does not seem to change the effective interest rate either. Maybe if there was a better way to hold people accountable to their promises. Another idea might be to have people put 20% of the money down that they wished to borrow.

]]> By: RG http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-169 RG Wed, 16 Jan 2008 18:52:32 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-169 Jacob - Great article. When you view Prospers Exec list and understanding sqft in downtown San Fran is utterly expensive. The spread they gain off their P2P lending and/or fees has to be factored in somewhere - it just has to be. There is obviously something that drew you into peer to peer lending. The overall concept is appealing and you can see where with enough attention paid to credit decisions - keeping defaults low - may prove to be a more viable business model. Personally I enjoy the antibanking/corporitism concept and know from experience in banking there is a TON of waste and overkill. There has to be a way to leverage technology, make very high quality loan decisions (maybe requiring proof of income) to help curve the default percentages. I personally am very interested in the peer to peer concept and having been in lending for 17 years - there is a way to do this business profitably for investor, borrower AND firm. Thanks for this article! Jacob – Great article. When you view Prospers Exec list and understanding sqft in downtown San Fran is utterly expensive. The spread they gain off their P2P lending and/or fees has to be factored in somewhere – it just has to be. There is obviously something that drew you into peer to peer lending. The overall concept is appealing and you can see where with enough attention paid to credit decisions – keeping defaults low – may prove to be a more viable business model. Personally I enjoy the antibanking/corporitism concept and know from experience in banking there is a TON of waste and overkill. There has to be a way to leverage technology, make very high quality loan decisions (maybe requiring proof of income) to help curve the default percentages. I personally am very interested in the peer to peer concept and having been in lending for 17 years – there is a way to do this business profitably for investor, borrower AND firm.

Thanks for this article!

]]> By: fathersez http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-95 fathersez Sat, 05 Jan 2008 12:47:11 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-95 I have my doubts on the sustainability of this p2p lending. Like you have clarified, it is more of a stranger to stranger borrowing. In our part of the world, we get a group together (real peers), each contributes a sum monthly or weekly and we all each take turns taking the money. So all of us have forced savings. And the earlier ones get sort of a loan from the later receivers. But only amongst known people and completely informal. No websites, adverts etc I have my doubts on the sustainability of this p2p lending.

Like you have clarified, it is more of a stranger to stranger borrowing.

In our part of the world, we get a group together (real peers), each contributes a sum monthly or weekly and we all each take turns taking the money.

So all of us have forced savings. And the earlier ones get sort of a loan from the later receivers.

But only amongst known people and completely informal. No websites, adverts etc

]]> By: Tom http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-91 Tom Fri, 04 Jan 2008 19:30:55 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-91 Very nice article. Thanks for putting this together and thanks for LazyMan for linking to it. This is the part that struck me that most and I'd say I've also learned from my experience with Prosper. I don't view payday lenders with the same disdain. " I also found it interesting that it is very difficult to predict who will break or keep their promises. I now understand why credit card companies and payday loan companies charge exorbitantly high interest rates. It is not to screw people over. It is to cover their default rates and the high interest rate should basically be thought of as an insurance premium rather than a profit." Very nice article. Thanks for putting this together and thanks for LazyMan for linking to it.

This is the part that struck me that most and I’d say I’ve also learned from my experience with Prosper. I don’t view payday lenders with the same disdain.

” I also found it interesting that it is very difficult to predict who will break or keep their promises. I now understand why credit card companies and payday loan companies charge exorbitantly high interest rates. It is not to screw people over. It is to cover their default rates and the high interest rate should basically be thought of as an insurance premium rather than a profit.”

]]> By: Moneymonk http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-40 Moneymonk Wed, 26 Dec 2007 21:01:00 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-40 DAYUM ! 70% holy crapnoodle! How did you eat, pay bills etc.???<br/><br/>looking forward to part II DAYUM ! 70% holy crapnoodle! How did you eat, pay bills etc.???

looking forward to part II

]]> By: Jacob http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-32 Jacob Tue, 25 Dec 2007 04:34:00 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-32 I have been saving somewhere in the neighborhood of 70% of my disposable (i.e. after tax) wage income on a consistent basis. <br/><br/>When I reached FI, I dropped it down to 50ish and allowed myself some discretionary spending. I plan to write about it in more detail soon. Hopefully one of these days. Incidentally, suggestions for topics are very welcome!<br/><br/>Actually I hit the investment income > expense threshold last year possibly even in 2005 depending on how you count it (2005 was a good year for me). I have been saving somewhere in the neighborhood of 70% of my disposable (i.e. after tax) wage income on a consistent basis.

When I reached FI, I dropped it down to 50ish and allowed myself some discretionary spending. I plan to write about it in more detail soon. Hopefully one of these days. Incidentally, suggestions for topics are very welcome!

Actually I hit the investment income > expense threshold last year possibly even in 2005 depending on how you count it (2005 was a good year for me).

]]> By: Moneymonk http://earlyretirementextreme.com/my-money-lending-experiences-on-prosper.html/comment-page-1#comment-30 Moneymonk Mon, 24 Dec 2007 16:46:00 +0000 http://earlyretirementextreme.com/2007/12/my-money-lending-experiences-on-prosper.html#comment-30 Jacob, can you tell me how you were able to gain financial freedom at 32.<br/><br/>What extreme savings did you do? 20%, 30, 40% of your income<br/><br/>Please share Jacob, can you tell me how you were able to gain financial freedom at 32.

What extreme savings did you do? 20%, 30, 40% of your income

Please share

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