Prosper Loan Investment Returns

Since October 2011, Ive invested in Prosper Loans. This is the third update of my experience investing in Prosper loans.

I really earn at least 9.03% Returns With Prosper Marketplace loans.

In October, 2011, I decided to take a small percent of my investment money and lend it to Prosper borrowers through the Prosper Marketplace. Prosper borrowers must meet minimum credit score ratings and go through a vetting process. These borrowers typically want to borrow money for short term needs such as debt consolidation, homeowner remodel, or business expansion.

Lending to others through Prosper is increasing my income as I serve as a banker to those who need money to build their businesses, pay off debt, or for other short to medium term uses.

Why I Invest in Prosper Loans

I believe in the concept of peer to peer lending or lending directly to those borrowers in need. I do not invest more than $50 in one loan (and you can choose to invest only $25 per loan) and during the two and a half years Ive lent to 1,462 borrowers. Of those 1,462 borrowers, 394 loans have been paid in full. Eighty three borrowers defaulted and at present 1,068 loans are active.

By diversifying in many loans, if a borrower defaults on her loan, is only be a small loss to me. As in any riskier investing endeavor, with higher rewards, the lender also expects more losses. I expect defaults and thats why its recommended to spread out your investing dollars across many loans.

I also automate the process so Prosper invests my money for me in the types of loans I specify.

My returns are 9.03 percent annualized, very close to Prospers projected returns. And although lenders benefit from higher returns, borrowers, may receive lower interest rates than are available on comparable loans.

Your Questions Answered

Following are some of the questions I had before I decided to lend through Prosper.

How much has Prosper loaned?

We crossed over the $1 billion mark in peer-to-peer loans. Its been a long road since the first loan in 2006. Since then the $1 billion dollars issued through Prosper went towards helping people fix their debts, pay medical bills, chase their dreams, and much more. The greatest thing about it? That $1 billion came from people who truly wanted to help others’ financial situations, while simultaneously helping themselves. April 3, 2014 Prosper press release.

How does the lending process work? Set up an account and transfer funds to Prosper. Decide on the types of loans you want to fund (borrowers are ranked from AA to HR ) and your investing criteria.

Can you choose who you want to lend to? Yes, you can manually fund individual borrowers loans. Also, there are lots of filters and plenty of staff to help you eliminate certain borrowers. Here are my personal investing criteria:(1) invested with Prosper before, (2) 90-100% on time prior payments, (3) made at least 15 payments. I invest in all loan grades from from AA to E rated.

What are the interest rates charged, credit scores, and  default rates of the borrowers? The following chart was taken directly from Prospers required Securities and Exchange Commission (SEC) filing document (10-Q) dated June 30, 2012:

How much might I lose? Its great to make double digit returns on your money, but you need to know the downside. The average estimated loss increases from 1.36% on a AA rated loan all the way up to 18.03% on an HR rated loan. Thus, if youre worried about default rates, you can choose to invest in higher rated loans.

What is the lender yield or return? Returns vary based upon the loan quality. Higher quality loans provide lower returns than riskier loans. In general you can expect returns between  5.53 and 12.03 percent.

A general rule of thumb is not to invest more than 5 percent of your total investment portfolio into speculative investments.

Please ask any questions, I am happy to share more details about my Prosper lending experience.

Have you ever loaned money through peer to peer lending? Share your experiences here.

Disclosure; This is not a recommendation to invest in Prosper loans, I am not a registered investment advisor and recommend you contact your own professional advisor with any investment related questions. If you become a borrower through a link in this article, this website may be compensated through the Prosper affiliate program.

The comments from this original article remain, please add your own current thoughts and questions.