07 December 2006

Live Long and....Prosper???

I would have to live an awfully long time to prosper from Prosper, that's for sure. At least, that's my take on the peer-to-peer lending service that seems to be all the talk in the personal finance blogosphere.

Lazy Man is all for it.
Scott is all for it, aslo.
It sounds like Mapgirl is wading into the shallow end of the lending pool.
~Dawn of Queercents gives the borrower's prospective.

I guess I am on the outside here, but my experience has not been that positive, and I don't know that I want to repeat it a few more times before I am sure. I wanted to start off with a relatively low amount of money, so I transferred $300 into my Prosper account. I authorized the transfer FROM my account on 11/15. It left my bank account on 11/16. It arrived, for use, in my Prosper account on 11/20. Since I initially didn't get the handle on standing orders, I ended up bidding (and subsequently winning) for the same auction twice - $100 and $75. I won another auction for $100, too. I now realize that with such a small amount of money to lend, I would have been better off with bidding on six $50 loans and spreading my risk, but there weren't many listings that met my lending criteria (higher credit grades with interest rates > 10-12%), so I figured I would do better to get my money lent out than to let it sit without earning interest.

I won both my $100 and $75 bids on the first loan on 11/21. This loan is still "pending review." Two-and-a-half weeks later, and Prosper is still verifying the loan? You would think that they would start the approval process when the request goes into the queue, or maybe when X% of the loan is funded. Still, two-and-a-half weeks seems like an awfully long time - even if this is supposed to help my money be more secure.

My other $100 loan was approved at 12.5% interest on 11/22. That loan was just completed on 12/5. I will receive my first payment of $3.73 on January 5 if all goes well. I figure it is going to take a lot of $3.73 monthly payments - and no defaults - for me to feel the least bit prosperous.

Right now, I suspect I won't be too bummed if my other $175 worth of loans don't ever fund. For a rate of return that is less than what the stock market will return this year, it seems like a lot of risk and a lengthy time with your money spent sitting idle. Actually, it is not sitting idle, exactly. Prosper is surely making money off of my money. Heck, you can guaranteed returns in a high-yield online savings account around 5%, so how much of an added risk factor should be counted on to yield enough to offset the difference between Federally guaranteed and high risk?

Tired but Happy does a pretty thorough job of discussing many of the things that I don't like about Prosper, but somehow manages to put a positive spin on it. Hmmm? Maybe I am just doing something wrong?

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