Wednesday, March 21, 2007

Live Long, but what about Prosper?

One of the more interesting developments in the world of personal finance has been Prosper. Prosper has done right by me so far. So I figure that I would talk about my small experiences related to prosper. I'm just your average pf blogger who learned about prosper and thought it would be a good idea. When I went to college, there were tons of places that advertised payday loans and such and I always got a little peeved at the idea of predatory lending. Don't even get me started about this whole sub prime mortgage mess. But now that I've been using it for several months, I thought I'd provide an update:

Right now I have about 300 bucks in prosper loans. Each loan is 50 bucks a piece. I slowly am filtering in some of my side income into these loans. And overall these loans are earning an average of 13 percent each. Surely it's not big money, especially when compared with possible long-term returns of the stock market or of the safer returns of a high-interest savings account or money market fund. But I still think that prosper has its place. It is a nice way to diversify your portfolio (albeit just a little bit).

1. TIME - If you're in it to make money for small amounts of time invested, prosper might not be the best thing though. I personally try to read each loan and related endorsements and comments before bidding -- even for a 50 dollar loan. I like the personal touch and I am ok with spending the time. But it certainly isn't very efficient. You might have another strategy, but this has worked for me so far.

2. RATING - I don't bid on anything below a C-level. Too risky, enough said.

3. FUNDING - If the loan doesn't already have a significant amount of funding, I won't bid. I bid to undercut on a juicy rate. That is the beauty of the auction process. And I often can steal 50 bucks of a nice juicy loan from someone because they aren't paying attention.

4. SELF PERPETUATING - My goal in the next year or two is to make enough money each month so that I can self fund new loans using only interest from existing loans. To that end I generally wait a month or two between each new loan and deposit only a small amount of money to add to the existing interest to make my next chunk of 50 bucks. This makes me comfortable that I am not putting too much of my money at risk. The build up is slow this way, but since I am not really "counting" on it, its fine with me.

Overall, this probably doesn't make prosper a worthy investment for tons of money. Unless you are like "pensioner", the guy who can afford to dump literally hundreds of thousands of dollars into prosper, it really doesn't matter. Prosper is really nice, and its a fun little investing 'hobby' but I don't think I will be getting rich off of it anytime soon. But it beats earning nothing on my money, and if it helps people avoid payday loans and other predatory lending, so much the better.

2 comments:

Steve said...

I used to agree with "don't bid on anything below C level", but that was changed when a B borrower defaulted by a bankrupcy. Now I am really starting to wonder if I should keep throwing money in there.

Joylie said...

I enjoyed reading your blog post about Prosper.com.

Just today, I listened to a podcast interview of the founder of Prosper.com. The interview was conducted by Standford University Business students who have a website called "Iinnovatecast.com." You can subscribe to their podcast at iTunes. All their podcasts are very interesting interviews with top innovators such as the CEO of Google, Craigslist, Intel, etc.

By the way, my son told me a while back that he had some money "loaned" to Prosper. I am going to have to ask him how it's going for him.

My website address is:
http://joyfulbiz.blogspot.com/