As you frequent readers of our blog will know (all three of you), we’ve decided to lend some money on prosper.com. We’ve blogged about this a couple of times previously, but it looks like things are finally coming together
We initially thought about committing $500.00 from part of a family gift we received. We re-evaluated this number as our wedding and honeymoon goals were not fully funded and utimately decided on $400.00. The transfer from my checking account finally cleared prosper last night. Their website says it takes 2-4 business days for the transfer to go through, its more like 4 days.
To hit our goal of making 10 percent return after taxes and expenses, we decided to spread our exposure across as many different loans as possible. Since prosper lets you bid as little as 50 dollars on each loan, we made on eight different loans. The average pre-tax return, provided that each is successful, should be approximately 17 or 18 percent (I can’t get an exact number because one of our bids is pending account verification).
Generally speaking, we made three types of loans.
1) Consolidation and refinance loans
2) Loans for investment real estate
3) Student loans
We had a mix of credit ratings across each of these categories (e.g some had a prosper credit rating of AA, some had ratings as low as D). We did not loan to persons without credit or persons with prospers ratings of HR (high risk). Consolidation, real estate and student loans all generally improve ones financial bottom line, and are thus both good for both borrower and the lender.
Explicit criteria for being rejected for a loan was:
1) Evidence of poor money management or wasteful spending habits: For example, one gentleman wanted to borrow approximately $12,000.00 to refinance some of his debt. However, his reported income was nearly $120,000. One hundred and twenty thousand dollars is kind of a large salary, which brings to mind the question of why he had so much credit card debt in the first place.
2) High debt to assets ratio: If you owe too much, its hard to make the payments on everything. From what my mortgage lender has told me, mortgages and food come first, so credit cards and other loans take a back seat when things get tight. The last thing we need is a late or slow payer.
Stay tuned for more further updates!
-James
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