Prosper Revealed

I started my first loan in May 2006 and have since obtained 40 loans. Over that time, my methods changed as I learned about Prosper, borrowers, and the rate of defaults. There were two revelations that changed my loan searching and bidding behavior.

1. Low ROTI (Return On Time Invested)
2. Past Predicts Future

Low ROTI (Return On Time Invested)

I spent a lot of time searching for “good” loans. I read stories, asked questions, read forums and blogs, reviewed other lenders’ experience, and created saved searches and watch criteria. After a while, I evaluated my time and activities and realized I was spending 1-2 hours to get one loan. Consider this scenario for one loan:

• Loan amount: $50
• Interest Rate: 20% (this is very optimistic)
• Net Income: $10
• Time spent: 1 hour (sometimes it was 2 hours)
• Income/Hour: $10 per hour

If I was fortunate, I was making $10 per hour!!!!! I haven’t made that hourly rate since I was in college 25 years ago. This had to stop.

I stopped bidding manually and started using “Standing Orders” which have now evolved to Portfolio Plans. This means I set specific criteria and when the criteria was met, the Portfolio Plan automatically bid on loans without my manual intervention. Now after my monthly reviews and adjusting the Standing Orders, I was spending less than 10 minutes acquiring one loan.

Method 1: Use portfolio plans; don’t manually bid on loans

But is that safe? Can you get good loans this way? I believe it is just as safe or safer than reading borrower stories and asking questions. See my next revelation.

Past Predicts Future

The most important piece of inside information I received about Prosper lending was a statement I heard in a video from Prosper Days 2007. The CFO said the best predictor of someone’s future behavior is his or her past behavior.

Therefore, if I wanted to do more than donate to borrowers, I had to find borrowers with an excellent repayment record. I started making adjustments to my saved searches and standing orders looking for the set of criteria that demonstrated good past behavior. It took months, but I revised and refined my criteria to the point I was quite comfortable they would acquire safe loans with a good rate of return. So far my standing order loans are doing better than my manually bid loans. It’s not perfect, but I wouldn’t go back.

Method 2: Find a set of criteria that shows excellent borrower past behavior and only bid on those loans that meet those criteria.

Even with these two methods, the current state at Prosper.com is not bright. For now, I’ve stopped prospering at Prosper.com.