– online banking, investing in fellow Americans and earning a terrible return on your money!

June 9, 2010


Prosper online community lending and banking

Prosper online lending – a good idea that just doesn't pan out as a viable investment.

Over the past several years I have invested in a website called For those of you that don’t know, Prosper is an online banking community where the committee members together alone out of money to people for various projects and uses. People can log onto prosper become a member and request money for anything from paying off their credit card to paying off their car, buying a car or even putting an addition on a house.

Each prospective persons seeking a loan has their credit rated by letter grades of A, B, C or even no credit or unrated. This equipped with the amount that they want to loan and the use of their using it for gives him an interest rate start off with and then the people wanting to lend them money bid this down until it’s filled.

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Initially it looks like a good deal and a good idea. You’re helping out your fellow American by extending the money in many cases where a bank will not do that. And at the same time your getting a return on your investment of average of 7% on up to 15 or 20%. So hypothetically that looks like a great return on your investment.

The problem here is is that regardless of whether they are an A credit person or C or even unrated the problem that you will face is the same problem that banks do – people do not always pay on time or at all. Many default. The problem here to face here though with Prosper is that the banks get the cream of the crop. You are left mostly with the dregs of society.

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What that means is that you cannot go by what a bank’s regular default rate of maybe five or 10% is. Prosper has a much, much higher default rate. It is so high that regardless of whether you use A credit people ,B’s, C’s or even unrated ones, your default rate will eat up any and all profits and you’ll be lucky to break even several years down the road.  So that means if you invested $10,000 today numerous prosper lending accounts, you would be lucky three years from today to still have that $10,000.

I know this because that’s what I invested recently in prosper was $10,000 and I did this five years ago.  As of today the exact same account which I have not pulled any money out of it is worth $9570 and some change.  Even though there are some accounts still paying on there I doubt that I will ever break even and I seriously doubt that I would ever make a penny from my investments their.

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Now it could also be that the recession were in now has had a terrible effect on people’s credit and their ability to pay on their debts.  This is true because the default rate increased in 2008, 2009 and 2010.  But even without that is not a great moneymaker.  I think it’s a great idea and hypothetically it should turn out great, but the level of defaults is just way too high and a come at all ranges.  So you cannot protect yourself from these defaults by just sticking with A level credit.  I have had just as many defaults at all levels.  I think actually far look at it and really count them all out I’ve had less defaults from the unrated’s then from the A’s B’s or C’s.

Regardless I also made another investment of the same amount, $10,000, in Cross Timber Oil Co. (Stock symbol: XTO) and it more than doubled in the same time period to $22,000 and some change.  So I think Prosper is a good idea but a very bad investment there is a lot more stuff out there that you can do far better with than with Prosper.

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5 Responses to – online banking, investing in fellow Americans and earning a terrible return on your money!

  1. Lioness on June 10, 2010 at 10:01 AM

    Ha! If you had invested the same $10,000 in the S&P 500, you would have… $8500… so my friend, you lucked out.

    Like or Dislike: Thumb up 1 Thumb down 1

  2. Harry F. Hamlin on June 27, 2010 at 8:06 AM

    Actually, he did luck out. I’m a lender and when I last went to check my account I was denied access. I have spent weeks attempting to find out why. I was able to get the customer service number through someone else’s account, but nobody calls back. Next step is letters to SEC, State Attny General etc.

    Like or Dislike: Thumb up 0 Thumb down 1

  3. omilphtegq on August 21, 2010 at 12:10 AM

    I tried Prosper and came up short. Way too many defaults and it didn’t matter what credit grade the people were. In this great recession they all stopped paying and I ended up losing money. Prosper sucks.

    Like or Dislike: Thumb up 2 Thumb down 0

  4. tooka beating on October 6, 2010 at 3:06 PM

    Back in 2007 I found Prosper to be a wonderful idea. I am a person who Tithes, so this looked like a wonderful opportunity to help my fellow man as well as myself. Big mistake. There are more scam artists on prosper than you can shake a stick at. The only ones who PROSPER are the loan seekers and the people who run Prosper. Do not lend one penny to these people.

    Like or Dislike: Thumb up 0 Thumb down 0

  5. Kim on January 22, 2011 at 10:35 PM

    Don’t use prosper. I “invested” $800 and got back $371….what a scam! Prosper doesn’t try to get your money back, they just charge it off….what do they care….it’s not their money that is on the line.

    Like or Dislike: Thumb up 0 Thumb down 0

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