Wednesday, April 16, 2008
Investing With Prosper
I have been experimenting at investing with peer-to-peer lending using Prosper. I am using Prosper's estimated return that uses their estimated loss, adjustment and servicing fee to calculate an estimated net return to determine the minimum amount to bid.
For example, if I want a net estimated return of 7.0% and the estimated loss is -4.29%, the adjustment is -0.55% and the servicing fee is -1.00% I place a minimum bid of 12.84% (12.84 - 4.29 - .55 - 1.00 = 7). Their loan bidding page shows this calculation for you. Their estimated losses are based on their historical data and may not reflect future results so the estimated return may vary and there is the risk of not being repaid at all. Diversifying by making multiple small loans would seem to reduce the risk of not being repaid at all, but there is also the risk that their estimated losses are systemically wrong when applied to current and future loans.
I made my first loans in January and mostly to AA credit grades but so far all of my loans are current. Of course, they are all still pretty new. Your mileage may vary.
Disclosure: If you click the Prosper link above and join Prosper I get a referral fee.
For example, if I want a net estimated return of 7.0% and the estimated loss is -4.29%, the adjustment is -0.55% and the servicing fee is -1.00% I place a minimum bid of 12.84% (12.84 - 4.29 - .55 - 1.00 = 7). Their loan bidding page shows this calculation for you. Their estimated losses are based on their historical data and may not reflect future results so the estimated return may vary and there is the risk of not being repaid at all. Diversifying by making multiple small loans would seem to reduce the risk of not being repaid at all, but there is also the risk that their estimated losses are systemically wrong when applied to current and future loans.
I made my first loans in January and mostly to AA credit grades but so far all of my loans are current. Of course, they are all still pretty new. Your mileage may vary.
Disclosure: If you click the Prosper link above and join Prosper I get a referral fee.
Labels: investing
