Last September, I took out a $10,000 home improvement loan on Prosper, to fix a leaky patio that I inherited when I bought my apartment. It was a known repair, and the leak wasn’t particularly bad, but I knew that it should be patched soon. With my annual property tax bill taking up all my liquid cash at the time, I decided to ask for the $10k loan on Prosper.
I probably could have gotten a personal loan at a bank, and maybe even a home equity line… although they’re extinct now, I’m pretty sure those existed about a year ago. I probably could have asked my parents to lend me the money, but they’ve already suffered enough. :o)
Instead, I posted a loan request on Prosper. In the process, I invited my closest friends and family to help me out. I only invited those I knew would be willing to bid, and let the Prosper community do the rest.
My listing was bid down from a strategically high starting rate of 15% to the embarrassingly low final rate of 5.54%. Five of my friends bid on my listing, and even at that ridiculously low rate, four of them stayed in the money. One was outbid at 5.95%, and wisely stayed out of the fray. Anyone will agree that there are better returns to be had from other borrowers on Prosper.
While my listing was up, I got 21 questions from lenders, ranging from serious to funny, and from sincere to rude. I answered 20 of the 21 questions. My favorite was from tekiegreg, who asked: “You seem to have a disgusting habit of paying everything on time, not declaring bankruptcy and living within your means (aka low DTI) explain all your sins here immediately!” I answered: “Sorry - I will try harder next time!”
If I can give some advice to lenders asking questions, based on my personal experience as a borrower, I would encourage them to strive for two goals. First, be gentle. Asking for a loan from the public can be daunting, and an accusatory or ill-phrased question could cause a perfectly honest and well-meaning borrower to withdraw their listing and go elsewhere. Second, try to ask specific questions about the borrower’s loan intent and financial situation. One question I got was: “Do you promise to make your payment on-time and in full?” I’m not even sure what kind of question that is. It’s like asking me if I love my mother.
There is one thing in my answers to lenders that turned out not to be true… I wrote: “I expect to hold this loan for at least a year,” and yet here I am 10 days short of a year paying the loan in full. Prosper has no pre-payment penalty, which makes it easy for those of us with debitophobia to pay our loans quickly (and with no penalty) and move on.
I apologize to my lenders for paying back so early. But again, I maintain that there are better rates to be earned with other Prosper borrowers. And next time I need some cash, you may be able to cash in on me again. Happy lending!
Believe that preparing for your family’s financial future is little more than setting up your new baby’s college savings plan? Think again. Parenting comes with a whole host of new expenses and considerations, each rife with potential conflict. If you are expecting a child, therefore, use this time to talk with your partner about the following five topics. Finding common ground before baby arrives will help avoid serious problems later.
1. Stay-at-home-parenting. Not everyone wants to be a full-time parent, so discuss your personal desires at length. If you do want to resign, draw up a detailed budget to know if living on a single income is feasible. In many cases, it requires significant downsizing, so be sure you are both committed to living within tighter financial constraints.
2. Your spending habits. Whether one or both of you will be earning an income, you are now a family and must act as a unified force. Talk about and set spending limits, keeping your partner’s level of comfort in mind. There are a lot of new products you’ll be buying for the baby and it is easy to have conflict over what you need versus what you want.
3. Credit and debt. If ever there was a time to get a handle on debt and credit issues, this is it. Even if you are in the black now, babies come with a lot of new expenses that can easily wind up on plastic. Commit to never charging more than you can afford to repay in a few months’ time. If you are currently holding onto consumer debt, concentrate on repayment.
4. Money management. Who is taking care of the bills in your home - the person who has the opportunity and know-how, or the one who always seems to lose the paperwork? Choose the right money manager. As new parents, you’ll soon be lacking sleep and concentration, making even simple financial tasks challenging. While you’re at it, streamline your finances. Set up online bill-pay and direct deposit with your bank and arrange an automatic savings plan.
5. Your family’s future. Now is the time to dream and plan. Do you want a new home or home improvements, a better or second car, to take exotic vacations, or pay for private schools or higher education costs? Discuss and prioritize your goals, and then start funding them with regular contributions. While you are at it, don’t forget an emergency account – it’s an essential part of every family’s savings plan. Aim for at least three months’ worth of essentials tucked away.
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Erica Sandberg is a nationally recognized credit and money management authority with over a decade of experience delivering personal finance and industry information to consumers, businesses, the media, and courts of law. She recently published a book: Expecting Money: the Essential Financial Plan for New and growing Families
Chris Larsen is Prosper’s Co-founder and Chief Executive Officer
When we first introduced the monthly market survey one year ago, we noted that the impact of the credit crunch on the Prosper marketplace was broadly constructive. At that time we noted that as consumers began experiencing the evaporation of introductory credit card rate offers and home equity loan options, Prosper was becoming an increasingly attractive financing alternative, especially for borrowers with good and excellent credit. We also discussed that lenders on Prosper were steering their bids toward the listings of higher credit quality borrowers.
As may be gleaned from the “Mix of Funded Borrowers” table below, the trends we observed at this time last year remain in full force today, particularly as the pervasiveness of the credit crunch is extended even further in the wake of the Federal government’s bailout of mortgage giants Freddie Mac and Fannie Mae.
Mix of Funded Borrowers
August 2008
August 2007
August 2006
YTD 2008
YTD 2007
YTD 2006
Since Inception
Prime
43%
32%
25%
43%
29%
27%
35%
Near Prime
49%
59%
50%
52%
57%
49%
54%
Sub Prime
7%
9%
25%
5%
14%
24%
11%
The table above also indicates that as lenders on Prosper have become more conservative in their bidding strategies and can be more selective as more prime (720+ credit scores) and near prime (600 - 719 credit scores) borrowers turn to Prosper, sub prime (520 – 599 credit scores) borrowers listing on Prosper may need to leverage “social capital,” such as inviting friends and family to bid to fund a portion – if not the majority – of their requested loan amount, in order to improve their chances of getting funded.
Very broadly, friends and family bidding activity demonstrates to lenders in the marketplace that borrowers are bringing more to the table than their credit data; they’re bringing people who are willing to put their money on the line because of their belief in that individual’s integrity and ability to repay the loan. In this tough economic climate, Americans’ social capital may be more important than ever.
For more details on the August 2008 Prosper People-to-People Lending Market Survey click here.
Prosper’s People-to-People Lending Market Survey results are released the second Tuesday of every month. To register to automatically receive the survey, send an email with “SUBSCRIBE” in the subject line to: p2plendingmarketsurvey@prosper.com.
Welcome to another roundup here at Prosper. School is in session for many, hurricane season has started, and summer is nearly over with autumn creeping in to take its place. How are you improving your personal finance?
I’ve Paid for it Twice Already writes couponing is for more than food. This is very true, and not all coupons are something you take to the register – of course I’m referring to rebates.
RateLadder is a Prosper lender and has been since July, 2006. He has a passion for p2p lending. He owns RateLadder — My Prosper.com Journey and other P2P Lending Adventures, P2P No Bank the P2P Blog Aggregate, and ProProsper — Professional Tools for Prosper Lenders featuring SQL access to Prosper data.
When I search through listings on Prosper, I generally look for loans from borrowers who have really taken the time to give Prosper lenders a good understanding of their financial situation and the purpose of their loan.
After I bid on a loan, I tend to feel so confident that they are trustworthy and credit worthy – I think to myself, “they’ll definitely pay me back.”
But it isn’t as simple as that. Even in rare occasions, the best borrowers can have a huge cost overrun on their home improvement loan. Or their business expansion loan might not be working out, even though everyone agreed the plan was solid.
How can we lenders protect ourselves from losing our money on these seemingly wonderful listings with compelling reasons to bid? Diversification.
Diversification is considered one of the only “free lunches” in finance. It was a concept that changed Wall Street and markets, because for the first time, people realized they could lower risk without lowering expected return.
How might that work on Prosper? Instead of committing $1,000 to one loan, spread it out. Make 40 bids at $25 each.
In fairness, there’s a good probability that one or more of those 20 loans will have a late payment and maybe (though hopefully not) a default. But even if some of your loans don’t work out the way you wanted it to, your risk is spread around. Losing out on 1 or 2 will be trumped by the rest of your loans performing as expected.
The more you diversify, the more your portfolio’s expected return will be close to your actual return.
In addition to bidding in smaller increments, here are some other ways to diversify using Prosper:
1) Set up a recurring transfer. When transferring funds to Prosper, I like to transfer $250 a month, which I can do automatically on the transfer funds screen. Bidding a little bit each month helps to resist the temptation of bidding big on one loan.
2) Re-bid your payments. Every month when my borrowers make payments to me, I put my money to work by using them to bid on new loans, which further helps to diversify the collection of loans I own.
3) Create a custom portfolio plan. Creating a portfolio plan that fits the criteria of loans you like to bid on saves a lot of time. Prosper will search for the loans that fit your portfolio plan and automatically bid on the listings that meet the criteria you set.
All of these are great ways to make sure you are diversified rather than putting all of your eggs in one basket. Enjoy your free lunch.
- Rohit C. has been a Prosper member since April 2006.
Last September, I took out a $10,000 home improvement loan on Prosper, to fix a leaky patio that I inherited when I bought my apartment. It was a known repair, and the leak wasn’t particularly bad, but I knew that it should be patched soon. With my annual property tax bill taking up all my liquid cash at the time, I decided to ask for the $10k loan on Prosper.
Believe that preparing for your family’s financial future is little more than setting up your new baby’s 
Welcome to another roundup here at Prosper. School is in session for many, hurricane season has started, and summer is nearly over with autumn creeping in to take its place. How are you improving your personal finance?
