People-to-People Lending ~ Possibly a Great Idea?

[pokerzen]

[iceman5]

[GodlikeRoy]

[iceman5]

You could lend out XX amount at 12-20% and make a very good amount of money even accounting for a certain amount of defaults.

As long as you spread your money out widely, I would think you would be OK. You could loan out $10K and as long as you do in it $100 increments, I wouldnt think you would have that many defaults. The only thing is, I wonder how accurate the sites figures are for defaults, credit ratings and things like that,

If you had all your money loaned out at an avg of 15% or so and had 1% or so defaulted on, you would still make a pretty penny.

Loan $10000 in $100 increments
You have 100 loans out
1 of them goes into default so youlose that $100.

You make $15 of $9900 or $1485. You get $9900 back plus the $1485 for a total of $11385....minus the sites .5% or $50 for a grand total of $$11335.

Thats a 13.35% return on your money. (assuming the sites default rates are acurate)

Its almost like investing in junk bonds but even better I would think.

[emmasdad]

The bankruptcy attorney in me is skeptical, but assuming that they are properly licensed as they claim (and I have no reason to believe otherwise and am too lazy to look it up) then this looks ok. The best strategy is probably to diversify between high risk consumer loans and upstart business loans. Probably like 70/30 or 80/20 in favor of the high risk consumer loans.

Numbers out last week showed that consumer credit defaults fell significantly last month, while mortgage default rates climbed. The thinking is that people are paying their credit cards/revolving credit lines before the mortgage, since home values have fallen in much of the country and in many cases loan amounts exceed house value. With the number of short sales and deeds in lieu of foreclosure that I have seen around here lately I think this explanation is probably correct.

[iceman5]

So you dont see anything illegal about this at all? Assuming they are licensed?

They do mention numerous times that the lender isnt actually lending money. he is buying the loans from prosper.com. I would think that makes it legal.

I also do tend to wonder why people want to borrow money at 15-25% interest though. Even the people with good credit ratings are willing to borrow and much higher than market rates.

[pokerzen]

From what I can see they are pretty highly regarded. Time magazine placed them in the top 50 sites of the year, so that's a fair bit of cred.

[emmasdad]

[MTPaid]

[prosperthisguy]

A few things, by clicking a referral link if you are a new lender you get $25 free when you open an account

Of course I have a vested interest (I am a member there) and when you get $25, I get $25 too for referring you [full disclosure]

Here is the link

Affiliate link removed by emmasdad - We do not allow affiliate links in the forums. Anyone interested in pursuing a prosper account is free to contact you by PM for more details.

iceman just showed up there - there is a forums section, its worth a read and study - although its quite negative I'd say if you avoid HR listings and avoid anyone who has a current deliqnuent bill outstanding the website stats say you can make around 9%

But obviously to outperform that you have to do more than that... it does have a learning curve just like anything, stock investing, etc but being an avid stock investor I'd say the learning curve is much less comprehensive. I have been investing in stocks for 15+ years and still learn Prosper you can probably derive your strategy within 3 months.

Anyhow good luck and again if you link through that link above and register as a new lender you make $25 free when you make your first micro loan ($50) and that loan is within a succesful listing... i.e. a loan is created.

Good luck and I am active on the forums over there - any questions give me a hollar.

[prosperthisguy]

[emmasdad]

[JJSCOTT2]

I'm too lazy to figure the math, but what's the highest percentage of defaults you could have and still make a return better than a more stable investment vehicle?

Also, as far as people borrowing money at obscene rates....I saw one of those used car commercials the other day, you know the ones I'm talking about "no job, no credit, no problem!" and I ventured to read the fine print at the bottom, I shit you not APR = 99.62%

[iceman5]

[GodlikeRoy]