I just transferred my current balance out of Prosper.com. I know they've made some changes recently but I'm not going to bid on new loans. It's just way too risky.
I've posted about my experience with Prosper.com in previous articles. Here's an index of my articles on prosper.com.
- Peer to Peer Lending with Prosper Et Al.
- What is Prosper and How Does it Work?
- Lending Money on Prosper: What Are the Risks?
- Lending Money on Prosper: My Results
What's Wrong with Prosper?
Prosper.com itself is great. The site works well. The problem is the product. Personal loans are very risky.
Because the loans are unsecured, it's very easy for people to stop paying. Banks plan for a certain bad debt expense. I was expecting some delinquency but I ended up losing 10% of my principal to defaults.
Prosper Is Too Risky
The way it is now, prosper.com is too risky for me. That doesn't mean it's too risky for everyone. I have a low tolerance for risk. I just don't want to lose money.
Prosper.com's risk does come with reward. I think if you have a large enough portfolio, you might be able to handle the risk. That's why large banks can survive downturns in the economy. They are large enough to absorb bad debt and still make money.
How to Fix Prosper
There are 2 things prosper should do.
-
Create a Secondary Market
Right now your money is tied up for 3 years. That sucks. There should be a way to sell loans when you need the money. A marketplace would decide the price for your loan.
-
Mutual Loans
If Prosper.com wants to attract a larger lender pool they should offer a mutual fund type product. Lenders could simple deposit $100 a month in either a high, low or medium risk fund and the profits and losses would be balanced out and then any profit would be paid as a dividend. That way you don't own any individual loan but just a small percentage of a large portfolio of loans.
I think Prosper could keep the individual loans for people with higher risk tolerance. It would be like stocks and mutual funds only as loans.
Your Experience Might be Different
I tried Prosper.com as an experiment. I invested a limited amount of money and I stuck to borrowers with good credit and good situations. I still ran into problems. However, your experience could be different.
If you're interested in trying prosper.com give it a try. However, I recommend you test it out before investing your life savings.
Have you tried Prosper.com? What was your experience? Leave a comment below and let us know.
Tags Investing Loans p2p Person to Person Loans Prosper Risk SavingsRelated Posts
- SEC Shuts Down Prosper
- Prosper Increases Maximum Interest Rates
- Lending Money on Prosper: What Are the Risks?
- What Prosper.com Taught Me About Risk
- What is Prosper and How Does it Work?
Comments
1 Comment so far
Those are horrible ideas. It is because of loan reselling that we have this financial meltdown. Nobody really knows how to price these things. The best and brightest minds in Wall St didn't have a clue how to price the mortgages they resold.
And also the whole point of prosper.com is to treat people individually, not just as a number. By selecting who to lend to on an individual basis instead of just looking at them as a number, you will have greater success.