Monday, December 03, 2007
Question: Do You Use Prosper Dot Com?
Yes! Prosper, if you didn't know, is like an EBay for lending. People looking for loans sign up and solicit bids for loans. As more people compete for lending the money (and collecting the interest) the interest rates goes down. Let's say someone needs $10,000 and starts at 12%. If enough people bid to provide that amount (say, 100 people offering to loan $100 each), then the 101st person can offer to loan $100 at 11.9%. See how it works? I use it by lending a total of $200 to 4 people ($50 each) and so far have made $10 in interest! That's an effective 5% return in only 5 months!
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3 comments:
Yes, I've now been using Prosper as a lender for seven months.
After encountering it, I came to the conclusion that I'd try $25 a week (just enough to get my feet wet, not so much I'd notice it out of my wallet or other investments) and see what happened.
I'm quickly coming up on $1000 of total loans (Probably sometime in the next month or so) and have had extremely good success. (However, I also may just be lucky).
I've gone for a more aggressive track, focusing on a few low risk ventures, but largely in the C-HR category while looking closely at their explanation of their problem, and what they intend to do with the money.
Loaning people money who are trying to get out from underneath a paycheck loan seems to be a good investment. I think this is partly because they get so much more liquidity by avoiding those bi-weekly paycheck loan "administrative fees" and also, they've dug themselves in deep once, and seem to have learned a lesson.
New businesses are also good. At least I like them. I know new business ventures are risky (I've started 3 businesses in my lifetime), but I also from a societal standpoint, support new business.
The perspective I take on it is the following:
1) Don't depend on prosper making you money. Think of it as a high risk high reward investment. It's not unreasonable to get 15% or better ROI depending upon your strategy there.
2) Remember, the investment is effectively not liquid. once you've submitted a bid for a loan, and it's gone through, you're stuck with it for 3 years. Don't put in money where you'll need it in three months, or even 2 years. It's probably not a good investment vehicle for someone that is on the verge of retirement, unless it's an investment where you're going to draw the interest off the top for "entertainment money."
Be prepared to reinvest your interest in prosper for a time. That's where you can really build up your stake, and your overall investment. A typical $50 loan will generate between $1-$2 each month in repayment. Plan on taking that money, and putting it back into prosper. I'm finding that my loans, which were originally $50, are now $55-$60 with this reinvestment.
and don't put all your money in one investor, spread it out. You lower your risk that way, even if you go with all High Risk loans.
Jason, I have started P2P lending and have extended loans on Lending Club instead of Prosper. I liked Lending Club because you can extend loans for only $25 each rather than $50 which helps spread risks on a small portfolio. I made a video of the loan portfolio creation process at Lending Club in case you are interested to see how it works and compares to Prosper.
I compiled some advice for new P2P lenders from several experienced P2P lenders and bloggers. Before anyone extends P2P loans, I recommend these investment prerequisites such as an emergency fund and maxing out tax deferred accounts (Roth/401k) especially since the income tax implications of P2P lending can impact your return.
If someone is borrowing, I recommend checking out Zopa for possible negative interest rates.
Sorry for all the links, but I think that you and your readers might be interested in them. Plus, I have so much to share on the topic of P2P lending that it can't be shared in a simple comment field. :) Good luck maintaining that great rate of return.
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