Pulling out of Prosper…
24th March 2007
For the last several months my interactions with Prosper have gone something like this:
- Log into Prosper
- Shake head at the growing number of late payments on my various loans
- See that I have enough cash to make a new loan
- Search through loan requests and either a) not find any I like or b) find one or two I like, make a bid then get outbid before the loan closes.
Today I finally got tired of the process and have decided to pull my cash out. I currently have 9 out of 49 loans paying late… That is far higher than I ever expected. Some of the late loans are paying but are still behind so I don’t expect them all to default, nor do I expect I’ll lose money in this investment. I do have other debt that I can use the funds to pay down however and I think that is a better investment for me at the moment between the risk and the time committment required to deal with Prosper.
It’s been an interesting experiment but it’s not for me anymore. I’ll detail out what my final results were after all the loans are paid off. At this point I expect a total return of 6-7% which, while better than bank interest (not by much though) is not worth it considering the non-liquid nature of the investment, the not insignificant risk of loss and the investment of time required (which probably makes the total return a negative proposition.)
March 24th, 2007 at 12:52 pm
Sorry to see you leave. You, as with us, were early adopters of Prosper. Therefore, we are taking the brunt of the lates. We don’t have any late loans when you look at July 2006 until now. ALL of our lates (except one which is an HR and we expected him to run late) were from the earliest times of Prosper. We agree with the notion that there is little to choose from and when you do it usually bids down too low. With time we hope to see this change as new borrowers catch on to what we are doing with Prosper. We’ve had our frustrations too, but when you run an analysis, you’ll see there IS a method to the early madness that is not reflected in the newer loans (past 9 months). Prosper is still young, issues must be met head-on with others. We need bold people such as yourself in the community!
Hope you reconsider.:)
Thanks,
Jeff & Heather
March 25th, 2007 at 12:36 am
Despite the fascination of the prosper.com concept, there is no getting away from the well-established “law” of economics that there is a direct relationship between risk and return. After all, if you could really get a much higher return on prosper than elsewhere for the same risk, lots of people would pile in, and the rates would get bid down until the returns correspond to what you can obtain for the same amount of risk elsewhere… there might be some “market inefficiencies” when prosper.com first started up, as there were limited numbers of borrowers and lenders, and many were probably transacting with limited research/information, but eventually market forces will ensure that the typical rates being obtained on prosper are in line with the rate you could obtain for the same amount of risk elsewhere.
There’s nothing wrong with investing some funds with prosper, but you should have realistic expectations regarding risk and return, and hence the likely default rates. If you do it in a business-like manner (rateladder springs to mind), you should get a reasonable return on your funds for the amount of risk you accept, but I think the effort involved won’t be compensated - so you should be enjoying the “admin” required to operate on prosper and treat that aspect of it as a hobby.
Regards
http://enoughwealth.com
March 27th, 2007 at 2:25 am
I like Prosper as another asset class to have some money to even out my overall returns. However, I don’t like the work needed to find loans. I think I may switch over to Zopa when they finally rollout operations in the US — take reduced profit in order for someone on their side to hand out the loans.
March 27th, 2007 at 2:43 pm
I think by more and more people ( borrowers ) jumping on the banwagon. It creates more risks for lenders. Like most investment vehicles there is a more to move in and there is a time to move out.
Always move out while you are ahead.
March 27th, 2007 at 3:31 pm
It’s all about the profit taking :0) As Moneymonk says, “move out while you are ahead.” You are ahead, and you also have a learning experience out of it as well!
LoanShak
April 14th, 2007 at 7:43 pm
New platforms always have growing pains. I can tell by how slow the website is lately…the number of people borrowing and lending continues to increase dramatically…
In April 2007, a new group was created on prosper.com “Six Degrees of Separation – A Social Networking Challenge” to facility person-to person lending on a secure, easy to use internet platform.
This group (Six Degrees) was created to help individuals who want to improve their finances. Loans can be obtained to either refinance higher interest debt (credit cards), to invest in real estate, to invest in other income producing or appreciating assets, or to invest in small businesses.
In addition, the group (Six Degrees) is offering a twist that allows individuals to participate in a social networking challenge to test the small world phenomenon. As an initial promotion, the group is offering a special promotion whereby borrowers can earn cash incentives if they fund a new loan within this group or create the largest number of referral loans within this group.
The group leader of Six Degrees has spent 15+ years in the traditional banking industry and is currently both a lender and borrower on Prosper.com. The group leader before forming this group invested his own money in 75 loans to help others across the country (California, Washington, Texas, Florida, Maine, New York and many other states).
Check it out and Join the Six Degrees Group: https://www.prosper.com/groups/group_home.aspx?group_short_name=SixDegrees
April 24th, 2007 at 6:55 pm
I’m pulling out of Prosper too for the same reasons you are. My default ratio is higher than yours though and there’s a chance I’ll barely have any return after I get all my money back. I’m not happy at all with Prosper. I’ve got B grade people defaulting.
June 14th, 2007 at 1:12 pm
[…] It seems like everywhere I look online these days I see yet another Prosper lender lament about another late payment or default and how they can’t wait to dump the whole program all together. I mean seriously, who loves to lose money? […]
July 8th, 2007 at 8:42 am
I signed up with Prosper around Feb 2006, within one or two weeks of them going live. I made two loans — but currently left with one since one loan was paid up early.
I dislike the fact that Prosper holds up your money for a long period of time before you get access to it. That’s when I decided to stop any additional investments and to pull out as soon as possible.
July 26th, 2007 at 12:14 pm
Everyone is complaining about high default rates. Of these defaults, how many are in the B or higher rating range? I fully expect a HR person to default, but 7-8% interest on an A rated person seems like a good deal. What has everyone elses experience with higher rated borrowers been?
December 13th, 2007 at 3:30 am
[…] 200 dollars in my new prosper account, but I became a little worried after having read the follow-up to Prospering from Prosper at My Personal Finance Blog. On one had, I look at loaning at Prosper as […]