Tyler with an anonymous e-mail address writes:
Why prosper? There are much better ways to earn returns on that money that 1) does not put other people in to debt and 2) are not as risky. You may be convincing yourself that Prosper helps others out, but I find that putting people into debt is a terrible and very sad. Put that $600/mo into a good mutual fund and earn 10-15% easily on it and you’ll reach your 2.25M goal in time. Stop putting people into debt.
Ouch! Let’s examine this in depth…
Assertion #1 – Prosper puts people into debt.
I’ll provide a little anecdotal evidence – Tricia at Blogging Away Debt credits Prosper.com for helping her consolidate her loans at a lower rate. This means she can put more towards principle and get out of debt faster.
I don’t need to convince myself, I know that I’m helping people escape credit cards and pay day loans.
Assertion #2 – Putting the money in mutual fund will earn 10-15%.
I don’t think mutual funds return 10-15% after inflation and taxes. I’ve said as much before. On average you are doing well at 10%, but it’s more likely to be about 4% after those costs. At that rate, it would take quite some time to get to 2.25M.
When you take a minute and think about it, the stock market, at least those don’t play dividends, is to some degree a Ponzi (or Pyramid) Scheme. If you can convince people to join in the game, the value goes up. What are you actually buying when you have a 100 millionth of a company that doesn’t pay dividends? You get the voting rights, but when was the last time any of the shareholders with less than 1/10 of a percent banded together to overthrow the majority shareholders? It never happens.
In the end Prosper.com eliminates the middle man – banks. The institutions make personal loans at 13+% and often only give people 1% on their savings. That’s an amazing minimum of a 12% margin for the banks. Prosper does the same thing, but uses automation and scale to make the spread under 3%. That’s good for both borrowers, lenders, and Prosper. The loser here is the banks, and to be honest, I’m fine with sticking it to them.