How Not To Bid On Prosper
Micro-lending is one of my 20 passive income streams. I currently have 45 loans on Prosper.com, lent out at an average rate of 19.55%. Even though I’ve had a few delinquencies, my capital has grown 14.5% in the 15 months I’ve been a lender. I’ve learnt a few things about lending and how to protect your principle. While I won’t explain how to lend money on prosper, I will explain how not to lend money!!
Here are the Top Ten Worst reasons to lend money to borrowers:
- You think they’re hot!
- You feel sorry for them.
- They have a picture of a cute kitten or puppy (or supermodel) in their profile.
- They’re 95 and need money for medical bills.
- They’re a Californian real estate investor and are willing to pay 20% interest for a remodel.
- They need $25,000 for college and are willing to 25% interest for it.
- They’re terminally ill and need a new fridge.
- They look like they’re 65 and are smoking in their photograph.
- They make $200,000 a year and need to borrow $5,000.
- They’re buying a business and want borrow the 20% down-payment.
So far I’ve had a really good experience with micro-lending on Prosper. Prosper also has a new tool that automatically calculates the estimated chance of loss based on several criteria like the the borrowers credit and number of delinquencies. That gives you a good idea of what minimum interest to charge to overcome your losses.
If you’re interested in signing up, Prosper is offering a $25 incentive to new lenders.
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January 30th, 2008 at 5:07 am
Thanks LOD. I took a look at Proper a few weeks ago. I would love it if you could give us a list of things that you do look for in the borrowers based on your experiences.
January 30th, 2008 at 6:49 am
Please tell us the 10 reasons to loan to certain individuals on the site.
January 30th, 2008 at 3:00 pm
Nice list!
Alma – here’s an article about when to bid.
January 30th, 2008 at 3:12 pm
So if you loan them money and you think they’re hot, do you automatically become a suga daddy?
January 31st, 2008 at 10:50 am
Every loan on prosper is very very risky. These are the people that can’t get loans elsewhere.
January 31st, 2008 at 4:22 pm
What is the average amount you loan out? This is a crazy idea.
February 2nd, 2008 at 7:19 am
[...] other day I read a post over at Living Off Dividends about Prosper.com. I had heard of Prosper before and I had even looked them over. [...]
February 5th, 2008 at 8:56 am
Lol. Good reasons indeed.
February 7th, 2008 at 9:35 am
I was shocked at how many of the loans were on the 10 worst reasons list. There were a few that seemed like they were just savvy borrowers wanting to avoid paying credit card interest rates on semi-large purchases, but I think a good 1/4 of the listings had a cute picture of a dog!
February 8th, 2008 at 8:02 am
Hey images sell, Parki! It’s easier to see a picture than read a paragraph!
Kenneth
February 8th, 2008 at 10:07 pm
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February 9th, 2008 at 10:13 pm
I was curious about how much you fellow investors place into a Prosper portfolio as it relates to your whole portfolio. I like the idea of diversity, which I am dollar cost averaging into some other asset classes that have capital appreciation potential as well as income generating potential. I’m intruiged by the website and its premise and would like to be involved, and from just personally looking at the site and the system I was thinking I may try dollar cost averaging somewhere around 5 to 10 percent of my total portfolio into something like this. Does this seem high to you all? I guess I would expect to generate from 8 to 10 percent return from this portion. Are those of you that utilize Prosper achieving those types of returns? I understand that you can ‘climb’ the risk ladder on Prosper and achieve higher rates of return, but with substantially greater risk. Another quick question, I have noticed they have ‘portfolios’ that they will allow you to place money into i.e. a ‘A rated’, ‘AA rated, ‘B rates’ with different rates of return based on the risk of the lending. Do any of you utilize these model portfolios or do you prefer to attempt to assess the risk yourselves. I am fairly young only 37, and have a fairly small overall portfolio of investments, about 150,000 right now, but am adding monthly to the principle and attempting to grow the principle through monthly income strategies linked with capital appreciation strategies. Thanks for your time and I appreciate the feedback in advance. I enjoy the informative posts and ideas for passive income strategies that everyone contributes here.
February 11th, 2008 at 7:56 am
[...] OFF DIVIDENDS presents How Not To Bid On Prosper posted at LIVING OFF DIVIDENDS, saying, “How to avoid getting sucked into a losing investment [...]
March 25th, 2008 at 6:55 am
[...] bidding on loans on Prosper.com is not without risk, my overall experience (and investment returns) have been quite positive. I’ve been investing for [...]
September 2nd, 2008 at 8:22 am
I’m a Prosper lender (regrettably) and use
http://www.ericscc.com/tools/prosper-lender-list
to monitor how I and other lenders are doing. Looking at lenders with $2000+ invested in 20+ loans with an average loan age of 365+ days I see there are about 3900 lenders so situated.
Ericscc estimates that only 19 of these lenders will have returns above 10%, and ZERO will have returns about 15%.
The median return is -0.16%, and keep in mind that these are 3 year loans.
Prosper does not reward lenders for the risks involved (1/3 of loans originated on Prosper are late in their payments or defaulted).
I suggest reading the posts on the forums on http://www.prospers.org if you have made (or are considering making) any Prospeculations.