Archive for June, 2008

The life of a student is incredibly hard at times and expenses can quickly mount up. Tuition costs are rising every year, books are getting more expensive and it can be difficult to find the right kind of housing on a budget. The vast majority of new students may find that their parents simply cannot afford to meet all of these expenses. Instead of giving up on your dream of an education, there is a way to pay for student expenses that exceed your budget without having to worry about traditional financing. 

Outside of federal student loans, in the past, students had to go to banks that specialized in offering student expense loans. Unfortunately, many lenders have decided to stop offering these personal loans in light of new government regulations. These regulations were put into place to crack down on fraud in the industry, but the result has been a decrease in availability for unsecured loans for student expenses.

Although there are schools that are stepping up to the plate and offering direct loans, often isn’t enough financing to go around. Federal loans are usually quite good when it comes to terms, but not all students will be able to qualify for this type of assistance. 

To help fill this gap and provide students with loans for their expenses, Prosper is one of the best p2p lending marketplaces that works with students. Instead of having to deal with a bank that may not want to offer an unsecured loan to a student, there is now the option of getting a fast online loan with very little effort.

Students can post their loan requests on Prosper and detail how much interest they are willing to pay. P2P lenders will then bid on these requests and sometimes the bidding will undercut the maximum amount of interest the student is willing to pay.

Banks take their time deciding and if you need to get that loan quickly, it can be very frustrating. For students that have not been able to secure a loan, they may only have a few weeks left before the cutoff deadline for enrollment. In this situation, when a student needs a fast personal loan, traditional lending is just not a viable option. When a student deals with Prosper, the whole process is streamlined and financing can be obtained in much less time and with a lot less effort.

The result of p2p lending for student expenses is that students now have another option when it comes to the educational future. If you cannot get a Federal loan or you just want to bypass all of the hassle a traditional personal loan, Prosper might be the right answer for your needs.

As soon as a student decides they will be going to college the expenses start to mount up. From making school visits to determine which school is right, to figuring out how to pay for tuition and books, the whole process can start to feel very confusing. In addition, without the right kind of unsecured loan, a student can end up overspending on their loans. 

While it is possible to go to a bank to get an unsecured loan for an education, the terms may not be acceptable for many students. These loans typically charge a premium amount of interest and it may be hard to get one that allows for small monthly payments. This is vital if you’re a student or if you’re just starting out and trying to pay down a loan.

In addition to going with a traditional student loan, students now have the option of getting a personal online loan from p2p lenders. This is a fairly new process that has already provided many students with financing for their student expenses. If you’re not familiar with p2p lending, here’s how the process works.

A student will post a request detailing what they need for their student expenses. The student can then decide how much interest they want to pay and what terms will work for them when it comes to the monthly payment amount. The p2p lenders will then be able to review the request and determine whether or not they want to provide funding.

In most cases, a student will receive several bids for their online loan. The lenders will bid in an attempt to get the loan, so this is a great way for students to get the best deal on a loan for their expenses.

This is much quicker than trying to secure financing through a regular bank. Also, if a student cannot qualify for a Federal loan, this means that their options are limited.

However, with a fast online loan through Prosper, students have the ability to quickly get the loan they need so that they can focus on their education. Instead of waiting for months for a bank to decide, or trying to figure out how to get a direct loan from the school, a student can immediately get bids on their loan request.

P2p lenders share the risk and the student will get partial bids. This really doesn’t affect the value of the loan, but it is a system that is put into place to help lenders on Prosper minimize their overall risks. The whole process takes very little time and the student can have their loan for expenses in the matter of a few days.

One of our primary objectives in making Prosper market data fully transparent and freely available via an API is to allow and encourage anyone to study the Prosper market and consumer credit markets in general.  We deeply appreciate the level of diligence and analysis so many have contributed using Prosper’s marketplace data.  We are also very encouraged that an increasing number of economists and professional credit analysts have taken the time to conduct deep studies of the market and share their conclusions publicly.

One such study was released yesterday by Economists Ginger Zhe Jin and Seth Freedman of the University of Maryland.  The study looks at Prosper’s market since inception to determine average returns and other interesting conclusions about the market. Among their findings:

1. The average Prosper returns since inception were estimated at 6.05% with a 5.72% standard deviation and were trending up as credit quality continues to improve (see table 9 and figure 8.3).
2. The highest returns were in Near Prime loans (grades B-D) at an average of 8.27%, followed by Prime loans (grades AA & A) at 6.78% and sub-prime loans at 1.73%.
3. The probability of default of a Prosper loan peaks at month ten and then edges down (see Figure 9). This is a major reason why Prosper’s performance tool shows more conservative returns. Prosper’s performance tool does not adjust for this later default moderation, which is significant given that the average age of the Prosper portfolio is currently 9.7 months (i.e. at the peak of the default curve).
4. The study showed that the highest returns occurred for loans priced up to 25%. Loans funded at more than 25% actually showed lower returns because defaults increased disproportionately. This implies that borrowers willing to pay very high rates show higher adverse selection, which is logical (see Figure 8.1).
5. The study found that lenders learn quickly - adjusting their bids and strategies as performance is revealed. New lenders also learn from their observations of earlier lenders in adjusting to marketplace dynamics.

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Chris Larsen is the CEO and Co-founder of Prosper.

Market Commentary By Prosper Co-founder and Chief Executive Officer, Chris Larsen

In May, a record number of loans – in terms of dollars and units – were funded in the Prosper marketplace. The sudden increased supply of loan listings with an attractive risk-return tradeoff (as cited in last month’s survey) was the key driver of the record level of originations. Also notable in May and worthy of further discussion are two recently introduced marketing initiatives.

Earlier this spring, Prosper began testing a radio advertising campaign in select major metro markets, and in early May we unveiled our new Lets Bank on Each Other^™ tagline and pilot TV ad campaign in the Minneapolis metro region. No actors were used for the television campaign; rather they feature real Prosper borrowers and lenders who have benefited financially and socially through their participation in the marketplace. In June, we expanded the television campaign pilot to select San Francisco Bay Area markets and continued our radio campaign in select markets around the country.

Another new initiative is the enhancement we made to our Facebook application. After experiencing very limited success on Facebook, in mid-April we decided to lower the minimum instant transfer amount to $50 for lenders who install the Prosper Facebook application. For lenders who do not install the application, the minimum instant transfer amount must be $500 and less than 20% of their active loan value. Since the introduction of the new feature, the adoption of the application has significantly increased, growing from a mere 400 users to approximately 4,000 users. This indicates that the added benefit is serving lender demand for lower minimum instant transfer amounts. In addition to the $50 instant transfer feature, the application enables Prosper members who use Facebook to share their Prosper listings, bids, and watched listings with their family and friends on Facebook.

Definitions

Attractive Risk-Return Tradeoff: For purposes of this survey release, listings are considered to have attractive returns if, based on historical loan repayment performance of Prosper borrowers with similar characteristics, they are priced sufficiently to compensate lenders for risk. Risk includes both the risk of non-payment by the borrower and other risks associated with people-to-people lending. In general, as the credit quality of the borrower declines, the range of possible returns widens, requiring a larger risk premium to compensate the additional uncertainty. The amount of risk premium required to compensate for a given level of risk is a subjective judgment. The following formula is used by Prosper to determine if a listing is priced adequately to have an attractive risk adjusted return: Maximum Borrower Rate > Risk Free Rate¹ + 3.25% + (Expected Annual Default * 1.5) + Prosper Servicing Fee. All lenders must make their own judgments with respect to what constitutes an adequately priced listing.

¹Risk Free Rate = 2-year CD national rate on BankRate.

Since Inception: November 1, 2005 through May 31, 2008. Prosper’s by invitation only “friends and family” launch began on November 1, 2005 and Prosper launched to the general public on February 13, 2006.

2008 Year-to-Date: January 1, 2008 through May 31, 2008.

2007 Year-to-Date: January 1, 2007 through May 31, 2007.

Prosper Select Index: The Prosper Select Index return is the estimated average annual return on principal, based on actual delinquency performance to date. The Prosper Select Index includes AA - E credit grade loans for borrowers whose credit reports at the time of application indicated zero current delinquencies, three or fewer credit inquiries, and a debt-to-income ratio of 40 percent or less. The annual return period reflects loans originated in the twelve month period ending one month prior to the observation date of May 31, 2008. Prime Select includes AA and A credit grade loans (credit scores of 720+). Near Prime Select includes B, C, D credit grade loans (credit scores between 600 and 719). Sub Prime Select includes E credit grade loans (credit scores between 560 and 599).

Average Borrower Rates: Average Borrower Rates are the weighted average borrower rates on Prosper Select Index loans with loan amounts between $5,000 and $10,000. Rates shown are interest rates, not annual percentage rates.

Mix of Funded Borrowers: Prime includes all AA and A credit grade loans (credit scores of 720+). Near Prime includes all B, C, D credit grade loans (credit scores between 600 and 719). Sub Prime includes all E and HR credit grade loans (credit scores below 600).

If you’re getting ready to attend college in the fall, chances are you’re trying to figure out which school is right for you. If you have already gotten a lot of acceptance letters or you aren’t sure where you should apply, a visit to the college is usually in order. You can really get a feel for what campus life will be like when you visit in person and you’ll be able to tell a lot more about the school when you are right there.

However, with rising gas prices and a struggling economy, many potential students and parents cannot afford to make these trips. Visiting a college is a very important step in finding the right school and instead of forgoing this step, there are a few ways that you can finance your trip and figure out which school you want to attend.

Getting a personal loan is a great idea when it comes to financing your college visits. You’ll be able to have enough money to visit several and your options will be much more varied. The amount of money spent should be looked at as an investment in your future, but this doesn’t mean that you have to pay a lot of interest.

Most people think of traditional banks when they consider getting a personal loan or an unsecured loan, but there are a few other options that may be more advantageous for this situation. P2P lending or peer to peer lending is a new way to get an unsecured loan online with a lot less hassle.

When you’re ready to start visiting colleges, you can post a loan request on Prosper. You’ll be able to set the amount of interest you’re willing to pay and sit back and watch the bids come in. P2P lenders are weigh the risks they are facing and they look for great opportunities to make an investment.

In addition to providing a viable alternative for financing school visits, the whole process of getting a p2p loan takes much less time. If you have put off applying for financing, this can mean that you have a small window of time available to secure a loan. Instead of relying on a traditional bank that may take weeks to come to a decision, you can start accepting bids on your loan request immediately. This usually means that the whole process can be completed in a matter of a few days instead of a few weeks.

You shouldn’t have to put off your future or make a decision blindly. With the right fast personal loan from p2p lenders, you’ll have the freedom to make an educated decision on the school that will play a big role in your future. The rates are generally much lower than a traditional bank loan and you’ll have the ability to find terms that work for your budget.

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