Prosper, Americas first peer-to-peer lending marketplace, has grown to more than 2 million members and funded over $4 billion in loans since they launched in 2006.
Borrowers who use Prosper can list loan requests between $2K and $35K, and lenders can invest as little as $25 in loans of their choosing.
On a search to learn more, I asked Reddit users on the subreddit r/sociallending to share their experiences as lenders on Prosper. Heres what they had to say:
Quality of Returns
One of the first replies I got was from fkn8, a lender who has had less than positive experiences with Prosper:
I’ve not been impressed with Prosper. Their system seems designed to keep large amounts of investors money in limbo for weeks at a time while transactions are pending. I don’t appreciate making interest free loans to Prosper while they take their time processing payments and verifying applications for notes that never close.
The few notes I’ve had default have been a total loss. I don’t see any incentive for their debt collectors to make the effort, as they can sell the debt at a huge loss (my loss), collect their fee anyway, and stick me with the bill. If you’re a glutton for frustration, crap customer service, and mediocre returns; feel free to bid on my few remaining notes on their trading platform.
Another user, rndmbr, makes an important note that he has seen better returns with other platforms:
I currently use both Lending Club and Prosper and I have been able to get higher returns with LC. There are some other little differences but in the end who really cares about the interface compared to the return on investment.
Prosper API, Statements, and Interactions
anilg3 (who has had better returns with Prosper) gave a little bit more context as to why Prosper is different than its competition, Lending Club:
I have been lending on both Prosper and Lending Club platforms for now 4 years. My annualized return on Prosper is 250 bp higher than that on Lending Club.
Prosper provides very rich historical loan dataset, containing almost 500 loan and borrower attributes compared to less than 50 loan and borrower attributes provided by Lending Club. I primarily use Prosper API. I think API is well thought out. Though I haven’t had any issues keeping cash in my Prosper account deployed, the new loan supply on Prosper for retail lenders seems to have been increasing recently. Prosper seem to have much higher recoveries, although slow, on collections of defaulted loans.
A few improvements Prosper may consider making. Reorganize monthly statements: For example, monthly statements don’t list the dates of individual transactions for cash deposited and withdrawals and consolidates all cash deposits and withdrawals into one entry. Secondary Market: While personally, I don’t trade on Prosper secondary market, Prosper could help traders by introducing API for secondary market.
In the last year while the quality of my interactions with Lending Club has declined, the interactions with Prosper have become much more friendly. Too much bureaucracy and secrecy seems to have taken hold at Lending Club.”
It seems that this users experience was positive with Prosper overall. Taking time to learn the ins and outs of the platform can help investors improve their returns, but with such a large loan dataset, it may take a lot of patience.
A Bit of History
Finally, 214b (one of Prospers earliest investors) gave some information about how the platform has changed over the past few years:
Well, I was one of the first investors on Prosper, way back in February 2007. I can give you some historical context. Both Prosper and Lending Club have changed their business models dramatically since they started.
Back in 2007, Prosper encouraged borrowers to write detailed descriptions about themselves and why they sought to borrow money. People would put up pictures of their children, their pets, everything. There was also an active message board for lenders, some of whom took to doing their own investigations about claims the borrowers made. You could easily ask questions of borrowers and get answers right on the system. Some of these questions were quite pointed and direct.
As you can imagine, a lot of people on both the lender and borrower side had unrealistic expectations. I remember howls of complaints when Prosper lowered the maximum interest rate — some investors actually expected to earn annual returns of around 48%. On the borrower side, some loan requests were, quite frankly, pathetic, (such as someone providing way too much information about a personal medical condition she was seeking a loan to pay hospital bills for) or over the top (such as a loan for breast implants – that one was funded quickly).
The whole thing blew up in 2008 with the financial crises, and a subsequent SEC investigation. The platform suspended operations for a while and when it returned, focused much more on traditional lending criteria and raised their lending standards overall.
Somehow, as a lender, I managed to make a 6% return in this initial period, even after taking into account defaults. I credit this to investing in carefully investigated loans and avoiding obviously stupid loans. However, getting even this modest return took work. I had to keep checking back at the site, and stay very active on the lender message boards to successfully make very small investments. It took a lot of time. It was “fun” for three months or so, then I moved onto other things.
So that’s how Prosper got started. I’ve loved the p2p concept from the beginning. And I’m glad the sites are getting it right — there’s no way I would have stayed with Prosper even without all its defaults.
I’ll add – I’ve moved most of my p2p lending over to Upstart.com now. Upstart, unlike Prosper and LendingClub, refunds any fees they make on defaulted loans back to lenders. Since they make no money on defaulted loans, the site’s interests are closer aligned with lenders. Prosper and LC still keep their fees, even if the loan defaults. This is an important, and often-overlooked distinction between sites.
This feedback mirrors that of anilg3, suggesting that earning good returns on Prosper is something that takes a lot of time and effort (and for some it isnt worthwhile anymore).
Conclusion
On the surface, it seems like Prosper is a great social lending platform that makes it easier for borrowers to secure a loan and investors to enjoy great returns. But, it’s best to get reviews from other users before investing time and money on any platform.
I invite Prosper users who have had a great and bad experience with the platform to comment on this article to give a more accurate picture of the peer to peer lending site.
As Americas earliest peer-to-peer lending marketplace, it seems that Prosper filled a need for a while, but there is now stiff competition. The consensus seems that even though Prosper can pay off, lower returns and other platform issues have turned some lenders away.
