New Features make Lending on Prosper Better than Ever |
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Prosper.com released a few new features recently. These features might be interesting to all lenders or potential lenders. Here’s a run down on some of the new features and how they could affect Prosper’s peer-to-peer lending market.
Portfolio Plans - Prosper now provides an automated method to bid on set portfolios. You can choose from 4 model portfolios that range from conservative (estimated return of 8.37%) to aggressive (estimated return of 11.06%). Prosper uses data from over a year of loans to determine the estimated return. I’m not sure if that sample size is large enough to depend on, but it might be interesting to try. This reminds me of some of the options I saw in many 529 college savings plans. I think this has two obvious advantages for lenders.
- It could be an attractive option if they don’t wish to spend hours reading and bidding individual profiles.
- It also gives guidance to those that might want to just diversify their investments outside of mutual funds. If you don’t care to learn the skill of finding quality loans, simply set up an automated bank transfer, choose a portfolio plan, and be lazy.
0% Fees on AA Loans - This is pretty big for those looking to place conservative loans. You already knew that low fees are good for other investments like mutual funds. The same concept applies here.
Interest Rate Cap is Increased to 36% - It was previously capped at 30%. I had difficulty making money with some lower grades even at 29%. In fact, I lost significant money on those types of loans. Perhaps at 36% it is possible for lenders to make money on loans from borrowers with lower credit grades.
Guidance on bidding - When you place a bid, Prosper attempts to calculate the estimated return. This is extremely helpful I found that some of my standing orders placed a couple of interesting recent bids. I thought that getting 18% from a B grade borrow with low DTI and low delinquencies would yield a pretty return. It seems like there were too many credit inquiries in the last 6 months reducing my estimated return on this potential loan to around 4%. Now if only there was a way of placing bids based on these estimated returns. Prosper, please allow me to set up a standing order for anything that has a 12+% estimated return. I know this is close to the aggressive Portfolio Plan, but this would give more diversity to the lending.
Now might be one of the best times to lend money on Prosper.com. For more on the changes, you might want to read this post on RateLadder.com.
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November 8th, 2007 at 5:45 am
Hey LM. Thanks for the heads up. I try to stick to AA and A grade borrowers. I was not aware of the AA fee reduction. Thanks.
“The trouble for most people is they don’t decide to get wealthy, they just dream about it.” –Michael Masterson
November 5th, 2007 at 9:47 pm
I scored an interview with Chris Neilsen from Prosper, I’m definitely going to ask some questions about the new portfolio plans, it’s an interesting concept, now if only they would do something meaningful with the money you get as payments, say put it in a money market account.
November 1st, 2007 at 11:25 am
Considering that I started with a strategy that had me down by 10% for 6 months, being up 4-5% cumulative now means that my current strategy is probably making 10%+, but I have no way to measure from the change. My strategy requires no work - most weeks I don’t even log into my Prosper.com account. See this post for that strategy.
November 1st, 2007 at 10:51 am
LM,
Do I read you right that you are making 4-5% on your Prosper loans? If that is the case, it doesn’t seem worthwhile from a risk return standpoint. It also seem like a lot of work.
November 1st, 2007 at 5:32 am
Thanks for the heads-up, LM. I had been letting Prosper coast for a bit after making some of the same mistakes you described and hadn’t heard about the new portfolio manager. I gave it a try- I figure it can’t do any worse than the poor picks I made after spending an inordinate amount of time reading loans.
BTW- anyone else having trouble posting comments here in Firefox? Just wondering what I’m doing wrong.
October 31st, 2007 at 1:13 pm
Some people do pay the 30% back. If you have 50 loans of E grade credit at 30% and 10 default, you’ll do worse than if you had 50 loans of E grade credit at 36% and 10 default.
October 31st, 2007 at 12:40 pm
I don’t see how increasing the cap help anyone. If they can’t pay back at 30%, they sure can’t pay back at 36% now.
October 31st, 2007 at 10:32 am
Mike: I realize that it’s not a positive. I also realize that several people are quite unhappy and leaving Prosper because of it. I read the forums. I don’t think the vast majority of lenders are going back and doing analysis on loans (that they had nothing to do with) that had gone belly up. Plus I have all the analysis I care about with that with the bidding guidelines. To some this is critical, but I still feel it’s a minority and not worth mentioning here.