For background, peer-to-peer  or person-to-person (P2P) lending is what borrows use instead of payday loans, pawn shops, credit unions, or banks that either offer poor terms and rates or won’t offer a loan at all.  Additionally, the rates on P2P loans are usually less than credit cards rates, offering borrowers a clear path to saving money while repaying their debts.

So a month into my person-to-person lending experiment, I have received my first payment on the first loan that I made.  I loaned $100 for 3 years to a B rated borrower at an interest rate of 14.59%.  I was paid $3.50, of which $2.17 was principle and the remaining 1.37 was interest.

In the last month, I have added 37 additional loans for a total of 38 loans with $3,800 invested in various loans.  At this point all the loans are current, but that’s with a single loan due.  The current breakdown of my loan portfolio looks as follows:

Person-to-Person lending loan portfolio 1 Feb

Current Portfolio

As you can see, the bulk of my portfolio is at the B rating, with about equal portions going to both a lower risk A rated group, and a higher risk, higher rate C and D rated loans.  The plan is still to expand my portfolio to at least 100 loans in order to properly diversify.  If you want to see the benefits of diversification, the statistical breakdown of portfolios is in my initial post in my peer-to-peer lending series.

As discussed earlier, the primary reason that I chose to use Prosper is because of the robust loan search criteria.  Based on various statistics at, I came up with the following loan criteria.

Person-to-Person loan search criteria

Search criteria

As you can see, I limit the loan size to all loans below $15,000, and I want 3 or 5 year loans, no 1 year loans.  I have found that the Auto category offers very robust returns and low default rates.  However, there isn’t enough volume so I added Debt consolidation, Home improvement, and Other categories in order to get an appropriate number of loans.  I limit the total delinquent amounts to less than $200 and only allow 1 inquiry at most.   Larger numbers in both these categories greatly increase the risk without a corresponding increase in returns.  I only loan to those who are employed, and make more than $25,000 a year.  That means no self-employed.  Sorry full-time bloggers, no loans for you, you are in a statistically poor group to lend to.

Finally, I like to loan only to prior borrowers with at least 12 payments made.  This is a very common filter, as repeat borrowers are much lower risk.  In fact, Prosper has reduced the loan rates to prior borrowers to reflect this lower risk.  However, it isn’t quite low-enough risk for me with a simple loan, I like to see the payments made for a year.  The difference in returns for those with less than a year and more than a year of payments was more than 5% points.  Amazing really.  According to Lendstats, here are the results of these filters:

P2P Lending Search Portfolio expected return

Expected return and Variance

The 14.5% return is significantly more than I’d be earning on these excess funds, but at admittedly at higher risk levels.  The plus or minus .3% is a nice tight range and tells me that the returns are fairly stable.

I look forward to seeing another dozen loans starting payments within the next week.  I’ve also had a bit of a shortage of available loans with the given criteria in the past week, only picking up a couple of new loans, whereas in past weeks, I’ve been able to see 10-15 loans a week.

As mentioned in comments earlier, I’m also interested in trying out LendingClub to see what I think there.  Once I do, I plan on writing a comparison article about the pros and cons of each platform.  Also, check out the previous entry in this series if you are interested in seeing how my P2P experiment started.


Readers, how are your person-to-person loans going?   More or less defaults than you expects? Any tips on finding better loans?  What about platforms, why do you prefer one or the other?

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11 Responses to Prosper update – $3.50, I’m rolling in it P2P style!

  1. My rate is at about 12%. I like your screens.
    I lend to 3 years only at this time. 5 years seem like a long time and more things can go wrong. I’m making about $10/month right now and would like to ramp it to $100/month eventually. I’ll take it slow though, no hurry.

    • admin says:

      I think the key is not to be in a hurry, and just select the loans that look like they’ll be winners. I know that I have pulled a couple of bids that I would have made under an automated system because the borrower said something I didn’t like, such as “I almost always pay off my debts.” Really?

  2. YFS says:

    I did nothing but lose money when I invested in prosper and lending club. Even the loans which had good credit risks went belly up. I think I just invested in a bad time frame.

    • admin says:

      YFS, that’s interesting to hear. Did you have many loans or could it have been simple bad luck? That was\is one of my worries that the statistical relationships won’t hold going forward. Unfortunately, I know that I need to get enough loans to get over the hump of bad luck of a few loans ruining my returns. A bit of a catch-22. That’s also one of the reasons I’m doing this out in the open here, so people can see my results and decide whether it is something that makes sense for them. Thanks for the input!

  3. This post was very educational for me. I did not know about P2P loans. Can you believe it? Now I am interested in it and I am going to do more research. The only thing I should note: if I do go this path, I will do it short-term, no more than 3 years.

    • admin says:

      Obviously there is a trade-off in length of loans (as there is in everything). I feel that my risk is actually lower for a longer-term loan because the payments are lower for the same principle, yet my loan rate is higher. Yes the loan may eventually go bad being so long, but hopefully with the correct diversification and higher payments prior to that, it won’t hurt much

  4. ProsperSucks says:

    I lost money with prosper. Loans end up defaulting a lot more than they report. I think I got 85% of my money back.
    It is a great place for borrowers to get some extra cash before they decide to trash their credit.
    You should be making $50, not $100 loans for more diversification.

    • admin says:

      How many loans did you have that resulted in the loss? Have you also tried other P2P sites like LendingClub with different results? Do you think there is a how-to somewhere on ripping people off on P2P?

      As far as diversification, $100 will be fine by the time I have my portfolio fully created and assembled. Yes, $50 would be better, but given the number of loans meeting my criteria that would take far too long to assemble.

  5. […] Cult of Money – Prosper update – $3.50, I’m rolling in it P2P style! […]

  6. Thanks for the article on your Prosper investment. We look forward to your continued success.

    There are two key points here:

    1) Timing – A couple of comments were from people who lost money on Prosper notes. Those people may have invested pre-Oct 2008. In July 2009, we came out of a 9 month down period with a dramatically changed risk assessment model. See these statistics. As you can see people who invested in notes before October 2008 lost money on the average. The average lender since July 2009 has made a 10.46% return. Here’s the third-party documentation on that.

    2) Diversification – Our estimates of loss work much better when a lender has at least 100 notes. Thus, for diversification it’s better to have more than 100 notes of small loans than fewer larger loans. We looked at every investor who had more than 100 loans since July 2009, and 100% of them had a positive return. Here’s the blog post and documentation on that.

    Hope this information helps. Let me know if I can provide you with any additional information about Prosper or P2P lending for your blog.

    Glenn G. Millar
    Prosper Employee
    Notes Offered by Prospectus

    • admin says:


      Thanks a bunch for your comments. I think that the diversification over many loans is a real necessity if you want to have proper loan portfolio. As for how Prosper ranked borrowers previous to July 2009, that doesn’t matter a whole bunch to me as long as the statistics since then have been stable.

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