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Prosper Part II

February 13th, 2008 at 06:13 am

So I have been doing some more research on Prosper lending. Basically Prosper is the same lending as banks do, but your return is lower than the bank's return because:

A) Prosper takes a piece of the pie
B) Interest rates are slightly lower than the bank's for several reasons (one of them being that people wouldn't borrow on prosper if they can get lower rates somewhere else)

The net yield, however, may be on par or higher than the bank's because banks have big overhead costs, here Prosper takes care of the overhead.

Secondly, there's the question of default risk. I couldn't say whether the default occurrence at prosper is higher or lower than those seen by commercial lenders. Certainly, it might be argued that the credit verification process that commercial lenders do is more sophisticated, and therefore safer. But many are of the opinion that the difference is not much different. Certainly, if there were no default risks, one could yield almost 20% at prosper, but even after defaults, most people I've read about have made over 10% yield through diversification.

I'm still waiting for my funds to go through. Then I'll start dipping my toe in the Prosper pool.

1 Responses to “Prosper Part II”

  1. billm950 Says:

    I too signed up for Prosper. I am a little skeptical about some stories people put there. Prosper is the same as buying debt from a bank, which is what you are doing. Prosper owns the account, but you own the debt. Little Risky, people that go there are usually people that can't get loans anywhere else. and if you are going for AA credit. the return is less than 4%. I can get 4.25% at zopa which is a simular concept. but you are not actually lending the money, you are putting the money in a CD which is guaranteed and they use that money to create loans..

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