The Saturday edition of the Wall Street Journal had a good report on how Prosper.com is working out.
Based on the borrowes credit score, lenders can get between 8 and 24%. A lot of borrowers aren't getting enough responses for their requests because the rate they are offering is too low for their credit rating [which is set by Prosper]. People with bad credit [termed as High Risk borrowers] are offering 10% when they should be offering over 20% and these requests usually generate no interest. People trying to borrow money for weddings are also having a tough time. However borrowers with stellar credit can get money for almost anything.[like trips to europe and flying lessons!]
If the loans go bad, Prosper has hooked up with 3 collection agencies who'll then try to collect. Prosper makes a 1% cut from the borrowers and a 1/2% servicing fee from the lenders.
The author of the report had made 300 small loans with an average return of 21%. [I'm thinking that might be a typo, coz otherwise he's funded 30% of loans through Prosper till date]. No one has defaulted although 8 people are late on the payments.
I'm not sure Prosper checks the borrowers debt-to-income ratio but I think they should.
I think I'll try to borrow money from Prosper. Maybe run an experiment and see if I can raise $250k to invest in real estate. With 2nd mortgages on investment properties running over 10% right now, it would be sweet if I can get money for those at under 9%.
Check out this related post about investing in notes.
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