As some of you know, I’ve been lending money on Prosper since February 2006. I’ve been intrigued by P2P lending for at least these two reasons:

It makes available an asset class not heavily correlated with stocks, real estate, or commodities
It provides an opportunity for a more efficient marketplace for loans by opening it up to everyone

Some people disagree with these statements. That’s fine, there’s definitely some room for discussion on either side of the fence.
When I went to Prosper Days to learn more about Prosper, one of biggest things the company talked about was social capital. [...]

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Continue reading → Prosper Borrowers: Buy My Endorsement For A Better Loan Rate

Before Prosper deleted their forums (archive available at prosperreport.com) lenders would often critique borrowers and share information in an effort to avoid borrowers who were likely to default. Sometimes those discussions would turn up quite a bit…

Continue reading → ‘Snarky’ blogger critiques Prosper borrowers

Three months ago Prosper hired Doug Fuller as the new Vice President of Operations in order to improve collections. He has started a letter series that he says has greatly increased payments. This is his first report to the Prosper community:”One of th…

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Continue reading → Prosper raises borrowers fees, improves collections

In my opinion, Get Rich Slowly is the best finance blog on the net. Today JD Roth, the author, posted a question from a reader. Tim’s brother-in-law is in college and is having trouble making ends meet. Tim wants to help him out but is “not keen on …

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Continue reading → Loan money to family and friends through Prosper

A few days ago Time.com announced their “50 Best Websites 2007″ list, which included our friends at Prosper!

From Time.com:

Our 2007 picks are the best examples of what’s new and exciting about the Web right now. Here we honor sites with exceptional style and smarts, sites that offer new and improved ways to access and share content, generate our own and otherwise enrich the online (and off-line) experience.

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Continue reading → Prosper.com Makes Time’s “50 Best Websites 2007″

Earlier this week I put together a list of all the top Prosper blogs. As I was reading, I came across an interesting post from January on Money Walks. The article, Blame the Lenders? Or the Borrowers?, showed that high risk and E-grade loans made up a …

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Continue reading → Prosper lenders avoid high risk loans

When you sign up as a lender you are required to agree to a Lender Registration Agreement. Among other things, you agree to not discriminate against borrowers based on race, color, religion, national origin, sex, marital status, age, sexual orientation…

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Continue reading → Do Prosper lenders discriminate?

The following question that a reader left on Tom’s OmniNerd article inspired me to write this post.What makes me curious is this: why don’t the A or AA folks just borrow from a bank? The rates seem high compared to banks’. My perspective is that of som…

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Continue reading → Why would a borrower use Prosper instead of a traditional bank?

In an earlier post (link), I had addressed the issue of Prosper.com itself. (not a scam)

However, the users of the Prosper.com platform are an entirely different matter. Four things about the marketplace draw out all sorts:

- the site is relatively new
- there are users that need money, some desperately so (borrowers)
- there are users that have money (lenders)
- there are ways to make money that involve neither borrowing nor lending (group leaders)

The site is relatively new.

While doing the best to provide an open and fair marketplace, there is only so much that the developers of Prosper could foresee when developing the site. As problems arise, it appears that Prosper is doing its best to make subtle changes to minimize fraud and/or “scamming” on the site. However, as a new and growing site, there are other developments that need attention as well. Resources get tight, and problems might not be addressed as quickly as one would assume.

For example, in February 2007, Prosper announced its “100% Identity Theft Guarantee”. (link) It appears this guarantee has been used on some fraudulent loans already, but don’t expect it for every bad loan.

There are users that need money.

It seems that finding an audience of those desperate for money is quite easy on Prosper. Although not all borrowers registered on the site can be classified as “desperate”, a quick perusal of the open listings on the site shows that many are.

Financial products, outside of Prosper, targeted toward the desperate by all appearances seem to be quite profitable. There has been at least one allegation of harvesting names and e-mail addresses from Prosper users for the off-site marketing of such products. (link)

There are users that have money.

If you are a lender, it should be obvious that lending money to strangers on the internet is risky. When presenting a listing, borrowers have a small area to describe why they need a loan, how they will pay it back, or whatever other information they feel like providing.

Can you be sure that all borrowers are telling the truth, or that Prosper verifies the accuracy of everything stated in a listing? - No

One of the most notorious borrowers on Prosper can be read about here. (link) and (link) I should note, however, that the mother’s loan appears to be paying on time at the moment.

There are ways to make money that involve neither borrowing nor lending

Group Leaders on Prosper can make money through their group. Group Leaders do not need to be borrowers or lenders.

Prosper offers Group Leaders compensation for their activities on the site. The reward package for Group Leaders was changed in February 2007, increasing the amount of money one could make as a Group Leader. These large incentives have the possibility of tempting many to “game the system”.

Here is an recent example of a Group Leader allegedly violating Prosper Terms of Service and perhaps causing financial damage to a borrower. (link)

Also, here is an announcement of the removal of a Group Leader (mentioned earlier in the post) from the Prosper marketplace (link)

So what does this mean for the typical Prosper user?

- Educate yourself about the Prosper marketplace (link) (link)
- Trust no one but yourself!

Oh, and use a little common sense.

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Continue reading → Is Prosper.com a Scam? (part II)

Yes

(based on my last post, one can tell I am not a fan of Groups on Prosper)

How should I describe the group failure at Prosper.com ? Poorly Executed? Unequivocal? Colossal?

I view the failure of groups as they stand only on my observation. But luckily there are some much smarter and more educated than me that are in the process of researching the structure of groups.

I cannot wait to see the final results, but here are a couple of blog posts by a researcher, sanjeev, who has discussed his initial research. Enjoy!

Group Reputation System at Prosper.com

Group Reputation System at Prosper.com - II

sanjeev’s blog

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Continue reading → Has the Prosper.com Group System Failed Borrowers and Lenders?

What are Groups on Prosper.com ?

Prosper says:

“The foundation of Prosper is based on groups of borrowers who share a common interest. A group can be large or small, based on a a community organization or nationality or even a common interest, like muscle cars or knitting. Groups can be religious, ethnic, educational… the options are as varied as the members who form them.” (link)

But what happened to the groups on Prosper.com?

Just checking quickly before writing this, I went over to the group tab on Prosper.com, and selected the link “View All Groups” (link) Here is a list of groups on that list with 5 or more active listings, which is 17 groups (could be different whenever this is viewed, but the results should be similar).

50% - 2 MILIONAIRES here for you. Fees shared. Marcel’s Group
50% - FUTURE FINANCIAL FREEDOM
75% - SMALL BUSINESS & SELF EMPLOYED
00% - No Bull Investors - We Invest In Good Borrowers (NO FEES)
75% - Large Money Loans for AA,A,B,C & D Credits
00% - IT Professionals
25% - Lend2’s Group
50% - Pay Day Loan Terminators
25% - Government Employees
50% - Life Changing Loans
00% - DIVORCED AND GETTING OUT OF DEBT !!!
00% - Rich Uncle
25% - Rock Solid Venture Capital
75% - All In The Family
00% - High Risks that should not be
25% - King Financial Group///100% Cash Flow Solutions For YOU
00% - We the People

Four of them appear to have any common interests that unite the members of that group:

SMALL BUSINESS & SELF EMPLOYED
IT Professionals
Government Employees
DIVORCED AND GETTING OUT OF DEBT !!!

So what in the heck are the rest of these groups doing? It’s quite simple. They are making money off of either Prosper.com, you the borrower, or both.

First, Group Leaders make money from Prosper when any borrower of their group gets a loan on Prosper. They want you to get your loan so that they get paid. This is called a “Match Reward”.

Next, Group Leaders can make money by charging YOU extra interest on top of your loan, just for the privilege of being in their group.

Notice the %’s in front of each group name. This is the percentage of the MAXIMUM amount of interest they can charge you. So, if the max interest is 2%, and they charge 50% of that, then you will wind up paying them an extra 1% (2 x 50% = 1%).

Slightly different than the Match Reward, this fee is paid by you, throughout the life of the loan. As long as you get can get a loan and pay them. This is officially called a “Payment Reward”, but also at times referred to a “Group Fee”. More incentive for them to have you get your loan funded. (how groups make money on prosper)

Notice some of the groups have 00% group rewards. These groups will not charge you an extra fee on top of your loan.

Group Slutting on Prosper.com

Looking back to the top of the page at how Prosper defined groups, then at the 17 group sample for this example, 13 of the 17 top ranked groups on Prosper:

- Have no interest in forming a group of people with similar interests or personal connections

- Have a monetary interest in seeing you get a loan

- Will likely be charging you a fee, which will increase your interest rate (compared to the rate you might pay as not being a member of a group)

- Are most likely at Prosper to make money for very little effort by being a “successful” Group Leader

Here is an example of borrowers paying higher rates for having the privilege of joining a “money-grubbing” group: (link - scroll down to the “Historical Group Rates” table and compare group %’s vs. marketplace 5’s)

What should the prudent borrower do?

Stay away from groups! Make a loan listing without a group, set an honest rate based on your credit (link - table does not include “Group Fees”) , and perhaps join the Prosper Discussion Forum’s for free advice from the community (link)

If you are having a tough time getting your listing funded without a group, then it may be time to join one. Just stay away from the groups that charge you fees for no reason!

(The group system on Prosper.com is a topic of great interest to me. I am not a group leader on Prosper, and If you couldn’t tell already, am greatly saddened by the evolution of groups on Prosper, and the way borrowers are needlessly taken advantage of (i.e. Group Fees) through this system. I hope to have more posts to help borrowers navigate the site, present listings, and get funded. Stay tuned!)

For more on the failure of the Prosper.com group model, go here: (link)

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Continue reading → Think Twice Before Joining a Group on Prosper.com

My spouse and I have been lenders on the P2P borrowing website prosper.com for almost one year now.

The allure of the Prosper marketplace is that borrowing and lending takes place directly between individuals, and removes banks from the picture. We believe strongly in this concept, and wish to see it flourish in the years to come.

Borrowing on Prosper.com

Although we have not borrowed on Prosper, Prosper offers huge advantages for those seeking money; whether for debt consolidation, financing for large purchases, or financing a business expansion. Lenders on Prosper are usually willing to lend money at a lower interest rate than what banks offer, thus saving you money.

Borrowers, there is great potential for Prosper to better your personal financial situation. Prosperous PF Strategies will help you learn how to use Prosper to your advantage!

Lending on Prosper.com

Prosper offers investors a whole new assest class in which to further diversify an investment portfolio. Prosper should not be an investor’s first investment or comprise an entire investment portfolio. As investors, we use Prosper to compliment the fixed income portion of our portfolio.

When used prudently, a satisfactory rate of return may be achieved on Prosper, while offering interest rates at or below what banks offer borrowers. Prosper.com truly delivers a win-win for all participants.

Lenders, there are many opportunites to expand and improve your personal finances. Prosperous PF Strategies will help you learn how to use Prosper to your advantage!

About the Authors

My spouse and I have over 150 loans on Prosper in our accounts. After almost one year on Prosper, we are achieving an ROI greater than our other fixed income assests. Our goal is to see the Prosper Marketplace as the primary financing engine for personal loans.

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Continue reading → About Prosperous Personal Finance Strategies