ADVICE TO NEW PROSPER LENDERS

tjohnsn · Joined: 22 Nov 2007 Posts: 4 Location: Georgia

Here's some advice to new prosper lenders from someone who has made over 270 Prosper loans and invested over 14K...

RULE #1: Never, and I mean NEVER, lend more than $50 per loan.

RULE #2: After observing rule #1, make sure that you lend to HOMEOWNERS.

RULE #3: After observing rule #1, make the most loans to higher credit scores and fewer loans to lower credit scores.

** Have fun, follow these rules, and you'll get a better return than you'd get from a bank savings account **

Smile

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Mark12547 · Joined: 22 Nov 2007 Posts: 4

How about current delinquencies? If the borrower hasn't been current with other parties, it lowers the odds that the borrower will be current with Prosper.

Also, a large number in inquiries (more than four in the last six months) could be desperation for credit. (It could also be shopping for a mortgage or shopping for a car loan, both of which people often do comparative shopping, each place they ask for rates likely generating an inquiry).

I also don't like large D/I. My preference, back when I was bidding, is no more than 20% D/I, but up to 40% could be ok.

I also don't like excessive revolving debt or a high utilization ratio.

One can check the "Lend" -> "Performance" tab on Prosper.com to check some numbers for various filterings if one wants to check to see how a combination of various criteria have done in the past. Of course, the future may be different now that Portfolios have come on board and as bid advisories have been added to the bid screen. However, it can still be educational to try various combinations of criteria on the Performance page and take to heart the numbers there if the resulting sample size implies statistical significance.

But then, what do I know? I stopped lending last March.
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vinnie · Joined: 22 Nov 2007 Posts: 6

tjohnsn · Joined: 22 Nov 2007 Posts: 4 Location: Georgia

You're right Mark. I go with "0" defaults - if they have any defaults, I don't do the loan. I also prefer borrowers with 20% DTI or lower.

The reason I prefer homeowners is that it provides additional leverage for the collection agency and when the defaulted loan is auctioned you get more for it.

Vinnie obviously hasn't been a lender for very long. All it will take is for two or three of his loans to default and he'll be saying "bye bye" to his profit. In order to spread out your risk, stick to the $50 rule - it takes more time to line up your loans, but it's worth it in the end.
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tjohnsn · Joined: 22 Nov 2007 Posts: 4 Location: Georgia

PS - After lending for 1.5 years, my annualized real return is still over 11%. You'll see people who claim higher returns, but over time, they loose those high returns and THEN SOME through defaults -
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vinnie · Joined: 22 Nov 2007 Posts: 6