Prosper Resumes Peer-to-Peer Lending

Written by Nickel - 12 Comments

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Just over a week ago, Prosper got permission from the SEC to re-launch their lending platform. For those that don’t follow this sort of thing, Prosper is a peer-to-peer lending company similar to Lending Club, and they’ve been in an SEC mandated “quiet period” since October 2008 while they registered with the SEC.

Similar to Lending Club, Prosper now has a secondary market for lenders who wish to sell their loans to other investors. This is a big step forward for them, as it significantly increases the liquidity of investments.

One interesting aspect of the Prosper business model is that the rates on loans are determined via investor bidding using an auction-platform. While I haven’t done it myself (yet!) this sounds a bit more involved than the situation at Lending Club, where rates are set based on the risk profile of the borrower.

Perhaps the biggest (apparent) negative is that the average return of their lenders is just 7.06%, which pales in comparison to the average rate of 9.61% being earned by Lending Club investors. While it’s possible that the higher returns at Lending Club are made possible by investors taking on greater risk, it’s worth noting that they actually require a higher minimum credit score for borrowers as compared to Prosper.

Ultimately, the proof is in the pudding, and I have yet to try out Prosper firsthand. That being said, my initial impression is that Lending Club is a better bet, at least for me. I’ll update as soon as I know more.

Published on July 24th, 2009 - 12 Comments
Filed under: Saving & Investing
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About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!

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Comments (scroll down to add your own):

  1. I’d be interested in trying it but I can’t its not available in my state. From their site: Prosper is only available to lenders from California, Colorado, Delaware, Georgia, Hawaii, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Washington, Wisconsin and Wyoming.

    Comment by Jim — Jul 24th 2009 @ 2:48 pm

  2. I’ve been with Prosper since inception, and have enjoyed a 12% rate of return on my portfolio. I originally invested around 1k, and reinvested the interest earned, but after the ‘quiet period,’ I started pulling the cash to my checking account. While I have had 2 loans default, I have also had a couple of lenders pay back early.

    On that note, all loans are for 36 months. And I attribute my return on my selectiveness. I individually picked the loans and didn’t use their automated portfolio buiding picker.

    Comment by Tony — Jul 24th 2009 @ 7:24 pm

  3. I haven’t had a good experience with prosper. I started in about 1.5 years ago before they went into their quiet period and invested in mostly people rated B to AA, and guess what, a lot of these A and AA rated people filed for bankruptcy. One thing lending club does is that people with debt to income ratios of greater than 20% cannot even be borrowers, but on Prosper they allow the debt to income ratio to be very high and still let the borrower be rated A. In actuality a person with a debt to income ratio of 50% is a lot riskier than a person with a debt to income ratio of 5%. So basically, i think the credit grades on Prosper are a lot more deceiving.

    Comment by thebaglady — Jul 24th 2009 @ 8:32 pm

  4. It’s good to finally have another company doing P2P lending in the US, but it seems to me a case of too little too late. I moved to LendingClub already and Im pretty happy with the quality of their borrowers. Prosper seems to be emulating the LendingClub guys (raised their fico minimum, now available per state, secondary market, etc). We’ll see what happens, but for now, I’m sticking with the other site.

    Comment by Linden — Jul 25th 2009 @ 8:57 am

  5. I’ve had good luck with the trading platform at Lending Club. I’ve been dabbling in it for about 4 months or so with just some petty cash (less than 100) and I’ve been really impressed.

    Comment by Leigh — Jul 25th 2009 @ 3:39 pm

  6. It’s not available in VA yet. I’ll continue my withdrawals from Prosper each time I hit the minimum ($25). I’ll probably continue my withdrawals after they get set up in VA.

    Comment by mbhunter — Jul 25th 2009 @ 10:42 pm

  7. Yeah LC has won me over so I don’t see myself changing unless given a good reason (good bonus?)

    Comment by Eric — Jul 26th 2009 @ 3:04 am

  8. I used Prosper before the quiet period (which is still quiet here in Maine) but I’m just pulling my money out now.

    I did all right, but didn’t really make the return worth the time it took to hand pick. I also noticed that most of my C and D credit-grade loans are still on time or were paid back early and most of my A and AA loans defaulted. Which seems weird.

    Comment by Blaine Moore — Jul 27th 2009 @ 10:20 am

  9. Here is my issue with prosper, and this was before the quiet period.

    1. I transfer money to prosper. It took a week if I recall. Thats a week that my money is not making any interest

    2. I placed a bid and had to wait about a month till it was actually given as a loan (they had to sign the contracts,etc). Again, a whole month that my money has been doing NOTHING.

    Comment by David — Jul 28th 2009 @ 10:57 am

  10. Here is something I thought about last night — I guess this applies to both Prosper and LC. How are these loans any different than what wall-street was doing with Mortgage Backed Securities (MBS).

    They are taking a single loan, slicing and dicing it into possibly hundreds of chunks that are each owned by different people.

    Do the borrowers have any recourse to renegotiate the rate — who do they call if they have a temporary cash flow and need to miss a few payments. Hopefully a normal bank will work with a borrower if there is a temporary need — does Prosper or LC have this ability with the loans they are generating (and throwing over the fence) ?

    Comment by LOL — Jul 29th 2009 @ 11:19 am

  11. MBS are many mortgages (loans) bundled as one item. That doesn’t seem particularly similar to what LC is doing where many lenders feed one single loan.

    Thus it is much easier to do with a troubled loan I would think as there is only one borrower to deal with.

    Comment by Matt — Jul 30th 2009 @ 6:26 pm

  12. I’ve been waiting for Prosper to come out of its quiet period so I could give this p2p lending a try. I’d have tried Lending Club as well, but they have instituted some pretty high lender requirements. If I recall, you either have to have $75k in income and something like that for net worth as well or $250k in net worth (excluding house, etc). Prosper came back without those requirements (for my state anyway) so they get an automatic win from me.

    Comment by Slinky — Aug 10th 2009 @ 12:18 pm

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