Oct 10, 2008

Prosper Update

As the stock market continues to take a nose dive to the depths of despair, making a short term profit in the markets (unless you're brilliant at shorting) seems near impossible. Meanwhile, getting a loan is getting increasingly difficult now that banks have finally figured out that high-risk lending doesn't work out so well for anyone in the end (unless the government bails you out with $700 billion, but anyway).

So I'm not surprised that P2P lending is getting a lot of press these days. Just last night, I was listening to CNN and they were touting Propser as an option for a place to invest.

Now, Prosper is a dangerous place to invest too, but it seems a little less risky than the markets for short-term investing, if you're smart about it. Here's why...

On Prosper, you can invest just $50 per loan, and that goes into a giant pot of loans from lots of different people. So even if one person fucks you over and you lose $50, you're still getting a good rate on the other loans. If you're lucky, and smart, you can come out making a profit in the end.

Right now, I have 10 active loans. 9 are current and one fucked me over. Fair enough. I wasn't smart about that loan. I learned not to bid on anything that looks like "Help Me Study Abroad ** Relist #2**" -- that's the one that got me into trouble.

I'm not that pained about it, that was a learning experience. I've also been fortunate enough to make $50 from Prosper through its referral program (you get $25 a person if someone signs up through you and lends money on the site), which at least helped me break even despite my stupidity.

Don't get me wrong, I'm nervous about my other 9 investments. With the economy tanking and unemployment rates rising, it won't be long before someone else may not be able to pay me back. But maybe that won't be the case. 8 of my 9 remaining loans are to people with good credit ratings (B or higher) who wanted a lower rate on repaying credit cards. If they can pay me at a rate of 18% versus paying their credit card companies 27%+, then it's a win-win for both of us. As long as they pay. And so far, all of them have paid up.

I think I've made about $23 on my loans so far, after canceling out the $50 loss and the $50 I made for referrals. Which, on a $450 investment, isn't so bad. Especially considering everything I've invested in the stock market is losing hundreds of dollars. So Prosper may not be a safe bet, but these days it seems like the better bet. Just be smart about it and you can come out ahead.



3 comments:

Fabulously Broke said...

You are a stronger woman than I. I can't stomach the idea of my money in someone else's hands... unless it's BFs :)

Besides, it's people I don't know which is why I'm so nervous.. but I can see why it's a great idea

MoneyMateKate said...

I first looked into it last year, and the two big types of loans looking for funding were to pay off credit cards (by far the most popular), or to fund daytrading ambitions. I clicked away and didn't go back until last week. I saw a great loan to get in on (someone who had saved 70% of a $50K franchise fee and wanted to borrow the rest @ 18.5%), and registered.

I emailed customer service about an alternative to driver's license info (I don't have one), and they never got back to me. I was annoyed - until the market tumbled so far so fast this week that I won't consider lending anyone a dime...I think a Prosper loan will be the first thing they default on even though the site claims that doing so will hit their credit score. I will be following your experience with this over the next few months, hoping to be shown the error of my nervous thinking!

bugbear said...

What I know about Prosper is that you have little to no knowledge about the people who you are lending to. Sure, they *say* they are saving opening up to open a franchise, but are they really? And do they have enough know how to operate it if they do?

sure, they *say* they are refinancing their credit cards, but after they do that, what's to stop them from charging them up again and putting themselves in an even worse situation? I feel like those who go to Prosper are those who have little recourse in other places, so why would I want to be their bank?

Basically, we have (or had!) a robust credit sector in this country, companies that know how to lend and do it for a living and are , by and large, good at it. And if someone needs to go outside that,I would be asking myself, "Why?". In any case, I'm not planning on lending to them myself

My general feeling is that I would borrow money from Prosper but not lend it to Prosper. But, really, I am not looking to borrow *any* money at 15-18%. You would have to be desperate to do that. And if I'm going to lend to a desperate person, I need to know more about them than what is provided in an online profile.

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