The final payments on my last Prosper.com notes have finally come in, and the total value of the notes I've invested in is now $0.00.
And it's going to stay that way.
This isn't Prosper's fault. It's mine. I'll explain.
I started investing in Prosper.com notes in June of 2006, as an experiment. This was the year it launched. After the books are cleared almost 5 years later, I've taken worse hits on my money than Prosper, but I've also done much, much better. Here is a summary of my foray into peer-to-peer lending:
- Invested in 53 notes totaling $2,923.56
- Payments from the borrowers on these loans totaled $2,705.28, for a total net loss of 7.5%
- Of the 50 loans, 30 of them (57%) were to borrowers with the highest credit rating (AA)
- Of the 53 loans, 47 of them (89%) were to borrowers with one of the two top credit ratings (A or AA)
- Of the 47 loans to borrowers with ratings of A or AA, 15 of them (almost one-third) were charged off to some degree (meaning I lost money on those loans)
It did take me a little bit by surprise that I lost money on what should be a fairly safe portfolio: nearly nine out of ten of the loans I invested in were to buyers that appeared very creditworthy (A or AA). The default rate I saw for these loans was several times the estimated default rate for these borrowers (I don't recall exactly the percentages, but I'm pretty sure both A and AA default rates were estimated to be under 10%). Of course, there are absolutely no guarantees: default is the risk for the greater reward, which was an above-market interest rate. But it's hard to deny that the notes I chose to invest in missed the mark pretty badly.
There could be all kinds of reasons why things went south for me: the recession in 2008 and the years that followed; lower-than-average judgement on my part (though I did take the time to read all of the listings); lack of real default data at the time I was investing. No matter. It was my risk to take, and I took it.
It could be a better environment for lenders now. Prosper.com has added a secondary market for loans, and has changed the way that lenders invest in borrowers — the rates are now fixed rather than determined by auction. So maybe I jumped in too early.
If you're looking to borrow money, it's a great site for borrowing money. It's a fairly clean way to consolidate debt at (possibly) a lower percentage than you might be paying now, and pay that debt off over three years.
There are lots of lenders ready to lend, and if they've been with it from the beginning, they'll love looking over what you need and making a decision based on their own criteria.
I just don't think I'm cut out to do that anymore, so I'll get out of the way. 🙂
Took bad. I started 2 years ago with Lending Club and had a completely different experience from yours. I started with a couple thousand $ on A and B loans, had a couple of defaults, but still made above 6%, so decided to plug I’m a bit more money. I now have over 400 loans in my portfolio and making over 8%.
I am waiting for my prosper account to get back down to zero also, I am being forced by my employer…still love the idea of P2P lending
Sorry to see you go as a Prosper investor but certainly understand. After losing 7.5% to the safest borrowers I would probably feel the same way.
But you are right about the new Prosper. It is so completely different that it is almost unrecognizable from Prosper 1.0. Many investors, including myself, are making excellent returns now. Of course, past returns are no guarantee of future results as they say, but if things keep trending upwards then I think the future is bright for Prosper and p2p lending as a whole.
I’m really glad to read this post. I’ve been thinking about investing (as a lender) on a peer-to-peer lending site, but so far I’ve only heard the “do it!” side of the experience, and I’ve been wanting to hear from someone who had a less-than-favorable experience with it. I’m really glad to read this, and I like your analysis of how doing it today might (or might not) be different than doing it 5 years ago.
Interesting post! I’ve always been curious about this lending scheme. Your report makes me feel glad I was too lazy to get my act together well enough to invest in P2P lending.
Don’t you think the Recession-That-Is-Not-a-Depression has a great deal to do with Prosper’s weak performance for you? Obviously, if people are losing their homes and their cars, the last lender they’re going to pay is someone who can’t foreclose on much of anything. Their credit’s already trashed, so there’s little you can do to pressure them to pay up.
I am also waiting on my investment in Prosper to get down to a zero but I am very happy with Lending Club. I have been getting good returns on my Lending Club investments and only had one loan go into default.
I only invest the minimum of $25 to any one individual so that I can spread out my risk..and the first rule of investing that I learned is Only invest what you can afford to lose.
So every time I make a $25 loan I consider that money gone for good and when I do get a repayment I consider it a nice little surprise….but I am not counting on it.