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After 100 Personal Loans ...

Contributed by mm | July 21, 2006 6:36 AM PST

Back in May, I started my loan shark practice at Prosper.com, a pioneer of web-based people-to-people lending in the nation. It has been a great learning experience so far, and I admit I am addicted -- in less than three months, I have underwritten 100 personal loans for a combined principal of $8,127, which makes me the 205th biggest lender at Prosper according to a third-party tracking service.

At the same time, I'm proud of the fact that I kept my discipline in providing personal loans. About 75% of loans in my portfolio went to borrowers with a credit score of at least 640. I also carefully price my risk into the interest rate I charged -- for example, on average I charge 27.1% for borrowers whose credit scores are less than 600, but I only charge 13.6% for borrowers with perfect credit (with score over 760).

Here is my tabulated result so far:

prosper-1000-loans.GIF

If you are interested, you can track my ongoing results at this page. (Yes, my screen name at Prosper is "bestbuy".)

This Post Has Received 39 Comments. Share Your Opinions Too.


Guest Commented on July 21, 2006

Hey MM,

What is the deliquency rate (if any) on any of your loans so far?

Guest


MM Commented on July 21, 2006

I have two late payments so far but now every loan is current.


Matt Commented on July 21, 2006

Hi,

So how does this shake out in terms of actual profit $$?

Matt


Jon Commented on July 22, 2006

MM- I opened a lender account with Prosper after reading your posts. Thanks for the info. I've funded 10 loans so far- no payments are due until Friday next week.

Question: In a way, doesn't it benefit us just a little when someone pays late (don't we get part of the late fee?). Sure, late payments may be early warning signs, but I imagine those cash advance shops make a hefty profit off people who always pay their debts, but often are late doing so.


MM Commented on July 22, 2006

Jon -- yes, we will benefit marginally in a matter of cents (or a quarter). Prosper recently increased the amount of penalty though.


CPA1298 Commented on July 22, 2006

MM - I began funding some loans back in May after reading your post and doing some research. The $200 I have invested qualifies me at position #2623 on Eric's Credit Community. I tried to keep my loans low-risk, but I already have one late borrower. Thanks for providing such great first-hand information, as well as access to resources such as Eric's Credit Community.

Have you been looking into Zopa at all? I think they are planning to make their US debut this fall. I read that they have ~ 50,000 users in the U.K.


Jamie Commented on July 23, 2006

How do you risk-adjust the portfolio? Do you use publicly reported default rates for given credit scores?

Separately, I note that the rates you charge seem higher than rates you can get from a typical bank. Why do you think consumers use this site as opposed to a larger lending institution.


Herb Commented on July 25, 2006

I'm curious how you're getting such good rates. I've been lending since early May and rates have been steadily dropping since mid-June. 13.6% on a AA borrower is impossible these days... Most close around 8%, depending on requested amount, and even getting C's at 13.6% is tough... Unless it's a large amount (>5K or so), most seem to close around 12% or better. I've been finding that it's tough to find loans where you're risk-adjusted return is greater than 8-9%.


MM Commented on July 25, 2006

Herb, just follow my loans at this tracking page:

http://www.ericscc.com/index.php?page=member_detail&sn=bestbuy

Discipline is needed when you want to maintain high rates, although i agree the competition drives rate down too.


Bill Commented on October 10, 2006

I am retired from the finance industry. I don't understand how 100 micro loans can make money. Perhaps I'm missing something. I want to borrow $8000 and prefund the first 24 monthly payments at 22% or better! Anyone?


Nestor Espinoza Commented on December 31, 2006

The economic value of user contributions to Internet sites..


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