For those of you who don’t know Prosper is a personal lending investment service. People come to the site looking for loans and you as the investor can choose to fund a portion of those loans for a share of the interest paid on them. What makes this appealing to you as the investor are the returns. While traditional bank accounts are paying around 1%, Prospers loans can yield anywhere from 5-12% depending on the amount of risk you are willing to take.
I have been a Prosper investor for almost 18 months and the experience has been great. I have invested into 39 different loans and my annual return is just shy of 10%. Prosper has done a solid job of making process of finding and investing very straight forward and the layout is simple and easy to understand. Once a month I deposit funds and I invest that and the payment money from my existing loans into new loans.
As I said everything has been running very smoothly until one day it happened. Someone didn’t pay. For over a year everything was great and then I look down my list of “current” loans and saw a delinquency. I’m not going to lie, it was concerning. Of course I knew such a thing was possible, you could even suggest inevitable, but I had gone so long with out a problem, then boom. I contacted Prosper about this issue and they responded with the list of actions. Here is an outline of their collection process:
- 1-15 days: Prosper will make calls and send emails to the borrower.
- 16-20 days: Prosper engages with a collection agency to collect on the delinquent note. A late fee is charged at day 16, 46, 76 and 106 days past due and is passed on to the Investors.
- Delinquency reported to Experian and Transunion on a monthly basis at 31 days past due until the loan is charged-off.
- 121+ days: The loan is charged-off and sent to an external charge-off collection agency.
- Collection Agencies will charge fees (up to 40% any recovered funds, plus legal fees and expenses) for any recovered funds. Investors in a delinquent Note will have these fees deducted from any recovered funds on a pro-rata basis. If no funds are recovered, Investors do not pay any collection fees.
Fortunately for me, the late loan was paid up in a matter of days. It appears to have been just a simple error. Since then none of my other loans has been late. This reassures my confidence in Prospers screening process. Delinquent loans are bad for business. When I saw a late payment it alarmed me, if it went unresolved I might pause my investment in the site. I am sure this is a common reaction.
To their credit Prosper has and continues to do an excellent job. I recommend their service to anyone who is looking to create a passive income stream and has the extra capital to risk.