My Experience With Prosper.com
Fantastic!! Prosper.com is one of a handful of companies that allow people to lend and borrow money directly from other people. Unsecured loans of between $1000 and $25000 dollars can be set up through Prosper.com, and lenders can distribute as little as $50 at a time. By lending equal amounts to a lot of people, lenders can spread their risk out and make it less likely that they will make a loss.
Lenders can pick through thousands of listings using a powerful search engine and no, you're not just reading a "story" from each borrower: you see a summary of their real credit profile, showing you how many delinquencies, how much money they have borrowed, their debt-to-income ratio, and a lot of other real financial data that you can use to help determine how risky it would be to loan this person money. The person's explanation for why they are seeking a loan is also shown, and they are strongly encouraged to post a basic monthly budget.
I began in September 2006 by investing a few hundred dollars in five or six different people. Over the next eighteen months I built this up to around $1500 across 24 people and only one defaulted on their payments. Looking back on that loan description now I saw all the warning signs that I now recognize pegging the person as a bad risk :) The rest have been very steady in their repayments aside from the occasional hiccup, but everyone is up to date with their payments and returning (according to a calculation at lendingstats.com) a very healthy 22.8% (it goes up slightly each day too!).
It came as a surprise, though, that out of all the lenders who are well-diversified (more than 20 loans) and have been in the system for a while (6 months), I'm actually the most successful!! Out of 9100 lenders who's average loan age is 6 months I'm #1! :) This may not last forever, of course; there are two lenders in the 3-month bracket who may overtake me soon, but still, I'm very pleasantly surprised at how well I've picked the loans I made so far.
I have recently decided to put more money into my Prosper.com lending and now have around $2000 and 30 loans, with more in the pipeline. Just to keep things from going overboard, I'm only putting in money I've made from my eBay and Amazon sales, and have developed a new lending strategy or two that I'm testing out. If they are successful, I'll increase that lending again.
Prosper.com has become a safer lending environment since I began. They added more real financial data about potential borrowers, thus making it easy to spot potential problems before they happen. They also beefed up their security and collections processes. They even added warnings to naive bidders who might be about to bid on a loan at too low an interest rate - it gets a bit technical at this point, but it all adds up to more confidence on my part that I'm making a good investment.
It's still a risky one though - the loan is unsecured and should, for the moment, be considered a "non-core" investment in your savings plans. If you've ever read about keeping 5% of your portfolio for "play money", to invest in the latest fad on Wall Street, or penny stocks, or an emu farm, consider Prosper.com as an interesting place to invest some of your money. I'm very glad I did!
If you'd like to join Prosper.com, please click here, or use the graphic at the top of this blog. We'll each get a $25 bonus and I'll be happy to get you started with information on how I choose loans to lend to.