Update On Prosper
I had a previous post about Prosper.com where I was planning on borrowing some money for investing.
However I decided against it and now I’m thinking I’ll lend some money out instead. If I lend money out at 10% and 10% of the borrowers default, I should still break even. There are several people asking for money who have stellar credit. If you like a bit of risk, you can get a higher rate. Lets see how it works out.
Here’s an interesting link Lenders on Prosper
And if any of you would like to share your Prosper experiences, here’s a great place to do so.
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October 4th, 2006 at 9:38 pm
You beat me to the punch. I was just about to write an update on my Prosper lending. I’ve been lending for a bit now, most to C and below credit levels and my return should be about 17% (risk-adjusted!) according to Ericscc.com. I think he has some flaws in his methodology, but I think it returns at least 12%, but more probably around 16%.
I think it’s very smart to lend out money. Heck, you might even want to play an arbitrage game with your good credit – if you have it.
October 4th, 2006 at 10:03 pm
the only problem with this sort of arbitrage is you become overleveraged.
If the people you lend money out to default, you’re now stuck with the payments from the people you’ve borrowed from.
reminds me of the geniuses at LTCM. not exactly a game I want to play!
October 5th, 2006 at 6:51 am
empty,
Funny, I too was thinking of a prosper update, but I’ll let it marinate a while.
Most of my lending is to B grade credit risks and higher.
I’m finding it a highly competitive lending space and a bit frustrating.
My average loan is about 15.5% or so – risk adjusted, it would come down a bit – but not that much.
I do recommend, if you lend, on building a well diversified loan portfolio (not too much to any one borrowe).
One of my first borrowers to default had an A credit rating!
Actually, he’s my only defaulter >90. I do have one that’s occassionally late but am hoping she’ll catch up.
Regards,
makingourway
October 5th, 2006 at 7:22 pm
Goog point on the arbitrage game Empty Spaces. I don’t have the stomach for those kinds of risks, so I didn’t even think it too far.
However, my theory with the arbitrage is that if you did something like a Heloc (and could make the payments on a worst case scenario!) then you aren’t risking a lot.
Like MakingOurWay says, diversify your loans and you should be ok (well that’s what LTCM thought I guess). I try to lend $50 at most to any one person. I know it’s tough to get top returns with a lot of money that way, but even something like a risk-adjusted 12% that is well diversified is decent.