Earlier in the month I mentioned the peer to peer lending site Prosper. This site pairs people who are looking for loans with investors interested in lending money. It is of course riskier than putting money in a savings account, but the interest is much higher (1% vs 8 or 9%). I have read about a few people who have given this site a try with relatively positive results. I decided to check it out for myself, I opened an account and deposited $100.
The entire process was very quick and easy. Linking my bank account and sending money took minutes and in a few days I was up and ready to roll. The site offers an automated “quick invest” option. You select your loan criteria and the site automatically selects loans that fit those parameters. If you had a large sum of money or you had a large number of loans turning over this might be the best method and in the future I may consider this option.
This time out I decided to individually select which loans I would fund. Since $25 is the minimum amount you can invest I choose to spread my 100 dollars out across four loans. Most of the loans available are for debt consolidation, a few for medical expenses, and a few for business expenses. I ended up choosing all debt consolidation loans. I didn’t plan it this way, but since 90% of the loans are in this category it’s not that unusual.
The amount of information Prosper provides you about the borrower is impressive. I primarily used the borrowers salary and occupation as my main criteria for selecting, but if I noticed a lot of delinquencies I usually walked away. Two of my loans were rated “A” by Prosper, one was rated “B” and one was “E”. The lower the grade the more likely the loan is to default, the higher the interest rate. My “E” loan has a 28% interest rate. If the borrower doesn’t default it will provide a nice yield.
I would normally stay away from such high risks, but I wanted to select a wider range of loans to see how they perform over time. As of right now all of the loans I have invested in are fully funded and are “pending review”. According to the site, this process normally takes 7 business days. Once they are approved I will be off and rolling. So far my experience with this site has been very positive, if it continues I would like to invest $100-200 a month here until I built my balance up to $5000.
Once I reach that goal I will reevaluate the situation and proceed form there. My biggest concern going forward is the economy. If things continue to stagnate or get worse it is entirely possible that borrowers will begin to default. You should always keep that in mind when making this type of investment.
As things stand I am pleased with my “Prosper” experience and will continue to invest with them in the short term. I will update you on my results in the coming months.