ever heard of prosper.com -- borrowing/lending

[wednesday]

I came across this last night and I'm intrigued. At the moment I'm wanting to keep our savings liquid so I don't think I will be participating in any way. I just wondered what other people think of it:

http://www.prosper.com/

[shayinme]

Seems like a great idea though its not a option for those with truly bad credit, often those are the people who really could use a loan/help.

Shay

[wednesday]

They actually do have a category called "High-risk" which they state has an average default rate between about 10-20%. I actually think those are the LAST people who need a loan, although clearly they do need some kind of help.

I guess I'm just kind of wondering about the whole thing...like if you do have good credit, you can probably get better rates through a credit union or even a promo rate on a credit card. But I'm really not down with the idea of borrowing to pay for a wedding or a computer or any other non-essential item in the first place. I guess I wouldn't feel great about making money off people who were making what I considered to be poor choices.

[Thalia]

Originally Posted by wednesday

They actually do have a category called "High-risk" which they state has an average default rate between about 10-20%. I actually think those are the LAST people who need a loan, although clearly they do need some kind of help.

I guess I'm just kind of wondering about the whole thing...like if you do have good credit, you can probably get better rates through a credit union or even a promo rate on a credit card. But I'm really not down with the idea of borrowing to pay for a wedding or a computer or any other non-essential item in the first place. I guess I wouldn't feel great about making money off people who were making what I considered to be poor choices.

I think it's interesting as an investment strategy. It seems like you can choose exactly whom you want to loan to. There are some worthy causes listed. One women wants tuition money to go to midwifery school: it would be cool to fund something like that and earn good interest. I doubt I could ever sell DH on it, but its something I will keep in mind.

[WNB]

Put me in the intrigued but skeptical category too.

One analysis I read put Prosper loans in the category of junk bonds, for the purpose of determining if returns on Prosper loans were competitive with "the market". I'm not quite sure I'd compare all prosper loans to junk bonds, but it does seem that -- regardless of the Prosper-credit rating of the people whose loans you fund -- there's a bit more risk than involved in more conventional loans.

But then again, maybe that's just what the banks want us to think.

[SusannahM]

I was planning to put a portion of our savings into it, a small portion, but enough to really spread out the loans. They give you their actual default rates for the different ratings, so I don't feel it's too risky as long as your money is spread out. A lot less risky than some of our other investments, anyway.

[kijip]

Some of those interest rates seem like usury to me. I could not participate in that.

[ookami]

I've read about Prosper on quite a few personal finance blogs. It doesn't seem like it's worth the trouble! Here's tiredbuthappy's take on it...
http://tiredbuthappy.blogspot.com/20...y-to-lose.html

[wednesday]

That blog looks very interesting.

I ran some numbers on interest rates and average default rates for the different credit grades of borrowers on Propser, and came to the conclusion that you'd only have to have slightly worse default rates than the posted average, to do worse than traditional savings, or actually lose money.

In other words, if 20 out of 20 "C" borrowers pay in full on time, you've made a great return. But the odds are at least 1 will default, so you really can't count on that full amount. If you're unlucky and 2 default, you haven't done any better than, say a CD getting 5%. If 3 default, you're losing money. I don't think those are very good odds, really.