Recently I shared a lot about my experience at Prosper.com by making micro persona loans ("After 100 Personal Loans ...", "Is Micro Personal Lending Worth the Trouble?"). With more than $9,000 invested in over 100 personal loans, it is time to reflect and decide on what I should do next with my lending experience.
First, let me say I am a huge believer of the business model of person-to-person social lending. Successful execution of this business model will remove a lot of friction cost in the banking (in which banks draw deposit from savers and grant loans to borrowers), and let both lenders and borrows benefit from such improved efficiency in the banking transactions.
Second, Prosper is executing the model quite well so far with enough participants on both side to form an efficient market. According to my tabulation, Prosper as a marketplace is on track to close 600 loans in the month of July, showing enough momentum compared to about 500 loans closed in June.
On the flip side, the success of the marketplace is still to be tested by time. All Prosper loans are 3-year installment loans, which means it will take at least two more years for lenders to fully access the true profitability of existing portfolio. In addition, jury is still out with regard to whether the current process is enough to curtail unavoidable scams within an acceptable level.
For me personally, if I keep investing at the current speed, I will have about 30 grand invested by the end of the year -- it might be on the heavy side compared to my full portfolio size (expected to break the half-a-million mark before then). I am usually not a risk taker, and it will be a stretch for me to commit such a big pool of money before I fully understand the nature of the investment.
On top of that, the daily 15-minute round I put toward finding new loan requests is becoming a chore at an expected yield of $26 an hour. Starting from two years ago, I have been seeking a balance between money and work/life balance ("The Cost of Being Frugal"), and $26/hour is perhaps not a job I want to take in addition to my busy working schedule forever.
So, I plan to get less aggressive in lending out money in the next few months, with a target of $12,500 invested principal by the end of September. As time goes by, I will also monitor the performance of my existing loan portfolio, and better form my risk assessment of Prosper loans. (Can I say 100+ loans represents enough diversification and sample size?)
Summer is not entirely over. With some new found time, I can bring my family for one or two more vacations!