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RE: Full disclosure and $25
This is very intriguing. I heard about Prosper a few months ago but now that I know someone who knows someone who uses it, I'm considering joining as a lender. I make 5.08% on my USAA savings account- good but not great compared to 10%+. With a stock market slide inevitable, Prosper might be a good move.
I get the default rate info. It's great how you Prosper aggregates the mini-loans from lenders, thereby reducing the risk. I get that.
What makes me curious is this: why don't the A or AA folks just borrow from a bank? The rates seem high compared to banks'. My perspective is that of someone who has only ever borrowed with collateral--a car or house--maybe unsecured loans just run higher, but aren't a lot of these people using their home equity as collateral?
Tomtolman, let me know what you end up doing. I intend to ease into the lending business, with a couple hundred bucks I can afford to lose.
Very interesting!
RE: Full disclosure and $25
That is how I started, a couple of hundred at a time until I had a good feel for the site. Your questions about why the AA or A borrowers don't go to a bank for a better rate is a really good one. I have AA credit with no delinquencies. At my bank, which happens to be Wells Fargo, the current rate on a 36 month unsecured $10,000 Personal Loan is 11.44%. This varies by State and loan amount - they have a tool on their website that helps you calculate the current rate. For home loans the rates are less, but there are also upfront fees, and not everyone is a home owner. For car loans you can also get a better rate, but not everyone with A or AA credit has a car that is completely paid off to use as collateral. You can see the average loan rates for Prosper here.
I think what you will find is that Prosper rates end up being very comparable to loan rates that you would get from a bank on a Personal unsecured loan. I have funded loans to AA borrowers for between 8.5% - 12% which seems right in line with what banks charge. Also, I am wary of giving loans to people who are trying to use it for buying a house or something where they should be able to find traditional financing - I prefer loans where people are doing things like refinancing their credit card debt at a lower rate.
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Full disclosure and $25
As I mentioned in the post, Prosper doesn’t really have any significant competitors. That could change very soon. Facebook’s LendingClub is a new threat. Zopa will launch in the U.S. very soon. In an effort to ward off these potential threats Prosper is reaching out to their members in an attempt to grow. They just started a new referral program. If you sign up after following one of the formatted links in the article or this link you will get a free $25 in your account once you fund a loan with $50 or more. So will I. :) If you do sign up, post your referral link here too and share the referrals.
I have yet to fund a Prosper loan but my brother has been investing for nearly a year. He's careful about who he lends money to. Mostly he loans money to people with AA credit ratings. So far he's earning more than an 11% return. None of his borrowers have been late with a payment. This is his lending profile. He has started a Prosper lending blog with some of his tips. For example, when to bid on loans (it’s not like eBay), how to avoid funding bankruptcies, and a quick review of some of the 3rd party tools to analyze Prosper statistics. This peer to peer lending thing has certainly captured my interest.
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