So, a reader contacted us and asked us to say more about our experience with prosper.com. For those of you who aren’t personal finance blog junkies, prosper.com is a person-to-person money lending service. In other words, the site has everything you need to loan money to people over the internet.
How it works is you create an account (this takes about a week) and then you loan or apply to borrow money by creating a listing on the site. Its a little like internet dating, but instead of trying to find that special someone, you’re looking to improve your financial situation. The CEO is Chris Larson (formerly of eloans.com), who I think is successful partly because he’s consumer friendly. I won’t say a lot about how the site works, because that’s been well covered elsewhere (1)(2).
Our experience with prosper has been mixed. We initially considered putting $70,000 into the service. After some reflection, we ultimately committed about $3,450 even though the minimum was $50. At the time we thought the service was intriguing, but the voice of reason prevailed. There were simply too many uncertainties to put so much cash into the website (e.g. my mom talked me out of it).
Since this is a personal finance blog, you probably want to know if we’ve made any money using the website. The answer is: yes! Our current account value is $4,018.88. This is a net-pretax gain of 16% or $568 on our investment of $3,450. So, yes Virginia, prosper has certainly assisted in our bottom line.
The service hasn’t necessarily been smooth sailing for us DINKs. It turns out that our initial strategy of lending to high-risk individuals was flawed. Of the 34 loans we have, 6 are in some stage of late payment. A couple of these borrowers might make good on their obligations, but most of these should probably be written off.
I don’t think this is a problem with Prosper, per say, but rather with our previous high-risk lending strategy. We’ve since changed strategies and won’t lend unless the borrower has good credit (that defined as having a B or better in prosper’s system). Other drawbacks are that the site requires a fair amount of maintenance. I find that I’m often frequently logging on to check emails or to allocate money sitting in our account.
All in all, I give prosper a ranking of B+/A-. The bottom line is that the website has made us money, but we’ve had to learn the hard way that people with bad credit don’t pay their bills. In addition the site can be labor intensive, which isn’t something that is always desirable.