Peer-to-Peer Lending: Peer-to-Peer Investing: Prosper.com Review
Prosper.com is a website in the emerging peer-to-peer lending industry which facilitates the borrowing and lending of money between its users.
How it Works:
Prosper, Lending Club and other firms sidestep the banking industry by creating an alternative means for borrowers to get loans. On Prosper, customers wishing to get a loan make a request to borrow a certain amount of money and set a maximum interest rate that they are willing to pay. Lenders bid on individual loans and commit to funding a portion of the principal balance and set the minimum interest rate that they are willing to take on a particular loan. Prosper.com manages the process, known as a reverse dutch auction, and assembles the best bids to provide the borrower with the lowest interest rates that lenders are willing to pay on the loan.
The company also reviews and verifies information about its borrowers, such as their credit history and personal information. The loans that Prosper originates are unsecured and amortize fully over 3 years. These loans have no prepayment penalty. Prosper.com generates its revenue by collecting a one-time fee from borrowers and by charging its lenders a loan servicing fee.
Legal Issues:
Prosper.com ran into legal trouble when the Securities and Exchange Commission sent the company a cease and desist order after it had deemed Prosper.com to be in violation of the Securities Act of 1933 in November of 2008. A class action lawsuit was filed against the company on behalf of loan purchases arguing that Prosper.com sold unqualified and unregistered securities in violation of federal securities laws. Eventually, Prosper reached a settlement with the SEC and has filed an SEC registration to bring it within the bounds of the law. Prosper.com re-opened in July of 2009 and is now creating loans again.
Borrowing From Prosper:
Borrowers on Prosper.com benefit over other peer-to-peer lending websites, because the interest rates that they pay are solely based on whatever the lenders are willing to receive as an interest rate. Since many lenders on the Prosper Marketplace are not seasoned investors, they often bid interest rates lower than what other financial institutions would be willing to take, allowing borrowers to get much lower interest rates.
Borrowers can borrow money for any number of reasons and the interest rate that they pay will vary from 7-25% depending on their credit score. Borrowers interested in getting a loan from prosper can do so at http://www.prosper.com/loans/.
Investing with Prosper:
Many investors that funded loans when the company first launched in 2006 and 2007 have had a very bitter taste in their money from Prosper. According to Prosper’s own website, nearly 20% of the loans that it has originated since the company as founded have gone delinquent. Prosper’s collections techniques are very minimal and the company does not allow its individual lenders to attempt to collect their debts. Many investors have received much lower rates of returns than they were expecting and some have even lost money.
Unlike its major competitor, Lending Club, Prosper has far fewer requirements for borrowers than Lending Club does in terms of credit risk, so borrowers that are likely to not pay their loans have had a much easier time getting a loan from Prosper than they have from with Lending Club.
To the company’s credit, only 1 of the 168 loans originated since the company’s re-launch have gone delinquent. It will take several months to determine if Prosper has turned their act around for investors or whether or not their interest rates will continue to be lower than that of its competitor, Lending Club. Investors looking to lend through Prosper.com can do so at http://www.prosper.com/invest/
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Great post but complicated to understand since I am from Faroe islands ;-) 
What would be your top three tips for anyone new to this topic?
Quote ——>>> Many investors have received much lower rates of returns than they were expecting and some have even lost money.
By “some”… you mean the MAJORITY of Prosper.com Lenders have lost money right? The majority of Prosper.com Lenders LOSING $$ can easily be reviewed at http://www.EricsCC.com
Onlookers should probably be aware that unless Prosper lines up more venture capital, they will run out of cash at about the end of this year (see Prosper's S-1 filing to see their cash on hand and burn rate). It's been suggested that the pending class action lawsuit against Prosper reduces the possibility that a venture capital firm would be willing to supply more funding. Prospective lenders should be sure to understand what happens to the Prosper loans should Prosper shut down.
Hi, Now days Venture capital market is very down. Every lenders as well as investor are think about it. Prospective lenders are understand the situation of the market.
Secured Loan
Readers of this article may be interested in the following:
http://www.americanbankingnews.com/2009/10/12/u...
I must say that my experience at Prosper has not been that bad, but I only lent $400 in 8 loans to try it out. Only 1 of them has gone bad, and 1 other is currently late, but I'm still breaking even (I think) after a year. Now lendingclub.com is doing much better probably because their model is much more robust and their collections and loan officers are really good. After investing a few thousands there, I'm making a comfortable 8% return with about 2% of my portfolio in default. Highly recommended. The only drawback is that it takes time to build up your portfolio if you are as picky as me.
I made 57 small loans on Prosper, about $3200, carefully diversifying my portfolio and choosing ones that sounded like responsible payers. After about 18 months, over one third of the loans are in default. From reading the trends, that number will only increase. And once the loans are turned over to a collections agency, not one time has money has ever been recovered.
I think I'm marginally in the black on not losing more money than I put in. But my faith in humans not screwing over others who trust them enough to lend them money has greatly declined. I would never recommend getting involved in Prosper or any other P2P group.
Quoting LauriLee —->>> “I must say that my experience at Prosper has not been that bad” “I'm still breaking even (I think) after a year.”
Your only breaking even after one year and you consider your experience “not bad”… *shakes head*. I hate to see what you consider “bad”. Trust me… read FRED93's blog over at http://www.Prospers.org and you will quickly see by his charts your portfolio is statically in a for a major drop.
I've lent about $2000 with prosper.com since August 2007. With all the charge offs (bad loans) I am at about 1% gain. I did the lending between Aug 2007 and Nov 2007 and stopped after that.
Would I invest with prosper.com? No I wont since it is very risky. I spend a lot of time to invest just 2k. One can have better options to invest.
But I still think it is not a scam. It is viable business. It depends how much scrutiny they do before borrowers can put up their loan request on their site.
I made a few small loans a couple of years ago which are still going. The interest rate turned out to be 30%, which most people would feel good about, but I actually felt bad about collecting such a predatory rate and wanted to forgive the loans. Apparently, Prosper doesn't allow forgiveness of loans. If I had invested in the markets, I would feel very good about earning 30%, but somehow, enriching myself by loaning money to desperate people at loan shark rates doesn't make me feel like I'm doing these borrowers a favor.
I made a few small loans a couple of years ago which are still going. The interest rate turned out to be 30%, which most people would feel good about, but I actually felt bad about collecting such a predatory rate and wanted to forgive the loans. Apparently, Prosper doesn't allow forgiveness of loans. If I had invested in the markets, I would feel very good about earning 30%, but somehow, enriching myself by loaning money to desperate people at loan shark rates doesn't make me feel like I'm doing these borrowers a favor.
I made a few small loans a couple of years ago which are still going. The interest rate turned out to be 30%, which most people would feel good about, but I actually felt bad about collecting such a predatory rate and wanted to forgive the loans. Apparently, Prosper doesn't allow forgiveness of loans. If I had invested in the markets, I would feel very good about earning 30%, but somehow, enriching myself by loaning money to desperate people at loan shark rates doesn't make me feel like I'm doing these borrowers a favor.
Hey I think its a good idea to do peer to peer Lending