Pulling out of Prosper

Prosper is not currently accepting new loans while it goes through a new verification process. They are also canceling their referral program.
I'm a big big fan of Prosper, and my intent has been to keep re-investing the money that I get when loan payments come in. Since they are holding you from making new loans, though, I'm going to start pulling that money out of my Prosper account, keeping track of the totals, and putting it in my savings account.
When Prosper reopens new loans, I will put the money back in.
I'm hoping it will reopen soon because I love the person to person lending concept!

Prosper Lending Update

Back in March, I got a Prosper loan to consolidate some debt. I managed to get a really good interest rate and I believe it's saved me a fair bit of money, as well as made me feel better about where my interest is going. 

If you don't know about getting loans from Prosper, check out my borrowing guide here. 

When I got my loan, I reinvested $100 in April and then added another $125 to my account since then, so I now have $225 invested in Prosper. 

I have that money split across 5 loans. Two of them are Credit Grade A, one is a B and the other two are C's. I've been lucky enough to have had no late payments (except one that was 3 days late), and no defaults so far. 

So how much money am I making? 

Well, my average interest rate is nearly 18% on these loans. I am very selective about who I invest in and I tend to find loans that close at a higher interest rate from people with a good proven credit history. 

Of the $225 invested, I have already had $31.43 that has been paid back, which I then went ahead and reinvested again. I've received $10.97 in interest alone in four months, which is pretty good for a relatively small investment of money. I'm currently making about $0.11 a day with Prosper. 

Why do I invest in Prosper?

I love the fact that I am helping other people deal with their financial struggles by investing this money. I would rather invest in people than in big companies. I know that Prosper is unsecured, but that is why I am keeping a very diverse portfolio and why I am incredibly selective about who I loan money to. I intend to keep reinvesting in Prosper, but it is unlikely that I will put any other money into it until my debt has been paid off and my savings goals have been reached. 

The downside of lending with Prosper is that you can't pull your money out of you need to. Therefore, it's not a good place to keep, say, your emergency fund. 

What do I look for in a listing?

I look for effort and information. I like to see people really put time into their listing. I like to know personal details. If you are consolidating your debt, I want to know how much of it is on what credit card and what the interest rates are. I want to see your budget and I want to hear your story. I want to hear your goals and what efforts you are making to put this money to go to good use. I will almost never invest in someone with previous delinquencies and in the event that I do it has to be because they have explained where they came from and what happened. 
I hate spammy titles telling me to look at the listing. I like it to be simple and straightforward. I hate typos and grammatical errors.
Basically, I want to be able to get to know them and trust them, and have faith that they won't let me down. 

You can get a sign up bonus for joining Prosper by following this link.

A Guide to Using Prosper - Borrowing

Prosper.com is a person to person lending site that is growing in popularity by leaps and bounds.

With the credit crisis in full swing, average people are being refused loans by banks, especially people with less than perfect credit. Some of these people turn to credit cards as their only option to straighten out their finances, but some turn to sites like Prosper.

How to Get a Loan

Prosper is a Person to Person lending site, meaning real people lend other real people money.

If you are a Borrower, you sign up for an account and Prosper verifies your identity and checks your credit history. It pulls your revolving balance, how many lines of credit you have, how long you have had credit for, any delinquencies or bankruptcies, how many credit inquiries you have had in the last six months, and your debt to income ratio. After pulling all of this information it assigns you a credit grade from AA to E. There is also an HR or High Risk credit grade.

Next, you set up a loan listing. This is similar to setting up an auction listing. You write about what you need the loan for and why you are good candidate. You also include information about your monthly earnings and expenses. This enables people to make sure that you can afford to repay the loan. You then select your loan amount, between $1,000 and $25,000, and the interest rate you wish to start the listing with. It is often a good idea to start a listing with a higher interest rate than you would like in order to attract bidders. Also, ask friends and family for endorsements. There is a system where people can endorse you on Prosper and having other people vouch for you can increase lenders confidence in your loan. It's even better if they are Prosper members, and even better than that if they can also bid on your loan.

When you post your listing, lenders are then able to bid on it. The minimum bid is $50 and they can bid on your loan at an interest rate of their choosing, so long as it is at or below the rate you started your listing at.
After your loan has enough bids to cover the cost of the loan, it is considered "Funded". This is where the fun part starts. People can now bid your loan down, meaning if they want a piece of your loan, they will bid a lower interest rate and the overall interest rate of your loan will start to drop. It's similar to eBay where high bidders push out lower bidders, but the high bidders are the ones submitting the lowest interest rates.

At the end of your listing if your loan is not funded, it disappears and you can start over. There are no penalties for this. If your loan is funded, you are given the opportunity to accept it, then Prosper reviews your information and deposits the money in your back account (minus their fee).

5 Tips for a Better Loan Listing

1. Include a picture. If your loan looks more interesting when scrolling through a list of loans, you are more likely to get bids.

2. Use a grown up title. "Consolidating Credit Card Debt" is better than "++OMG Pleese Look I Need Money Now!!!1!!!1!*". Trust me.

3. Include a list of your income and expenses, and if you are consolidating debt include the balances of your credit cards and what the interest rates are. It is likely people will ask you this anyway.

4. If you have delinquencies, explain them in the listing and note whether the loan will be used to pay them off.

5. Spell and grammar check your listing. Treat it like a job application and make sure it is detailed and well presented. Make sure everything is coherent and explained.

Paying Back Your Loan

Prosper requires you to make 36 monthly payments, the first of which is due a month after your loan is dispersed. Your payments can be set to automatic withdrawal, but you can make payments manually or early very easily through the Prosper system.
One of the interesting components of the Prosper system is that it displays the due date of your final payment, and what they estimate that payment will be. Any time you make an early payment or a payment for an amount greater than your minimum, it recalculates that final payment so you can instantly see the good that you have done.
If you miss a payment, you are charged a late fee.
When you make a payment on your loan, that payment is broken down and deposited into the accounts of the people that bid on your loan.
So the money you pay and the interest that you pay will go into the pockets of real people.
You can have a maximum of two loans with Prosper for a maximum of $25,000 borrowed. Depending on your credit grade, you must have made on time payments for 6-12 months before you can apply for a second loan.

I ran a $3,000 Prosper loan for ten days, and it closed at an interest rate of 11.8%. I used this loan to pay off my scooter loan which was at a higher interest rate, and to pay off a portion of a credit card which also had a high interest rate. After I am eligible for a second loan, I plan to consolidate all of my credit cards into a Prosper loan and probably refinance the first loan. I hope to get an even lower interest rate the second time around.

A Handy Tip

If you get a Prosper loan, when the money is dispersed into your account go ahead and make the first payment on your loan. That will give you a safety net on your loan payments. Continue to make each payment a month early and that way if anything ever goes wrong with your finances, you have a month of breathing room to make your loan payment.

I will be writing a guide to Lending on Prosper soon. Feel free to ask any questions!


To get a sign up bonus for joining Prosper, go here.