Prosper Review 2022: Is the “Reborn” P2P Lender Right for You?

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Very few fintech companies survive what Prosper went through back in ‘08.

Within three years of launching, Prosper was hit with a class action lawsuit, a cease-and-desist from the SEC, and oh — a global recession.

But more than a decade on, the battered and bruised peer-to-peer lender has finally found its stride, with decent offerings for borrowers and investors alike.

It’s still a mix of good and not-so-good, so let’s take a deeper dive and find out if investing (or borrowing) through Prosper is right for you.

Commission & Fees - 5
Rates for Borrowers - 5
Rates for Investors - 6
Customer Service - 8
Ease of Use - 10
Diversification - 9
Amount of Deals - 9
Due Diligence - 10

7.5

Although Prosper's offerings are not without risk and require a long-term investment, it's not a bad P2P platform that's easy to figure out. However, make sure that it's available to investors in your state before you sign up.

Prosper Pros and Cons

pros

  • Pre-qualify with a soft credit check — Borrowers on Prosper can prequalify in minutes and see their rates and terms without risking their credit.
  • No prepayment penalty on personal loans — With no prepayment penalty, you can pay off your loan early at any time and save tons on interest.
  • Low credit requirement — New and returning borrowers need a credit score of just 640 and 600, respectively, to apply for a Prosper loan.
  • Slick app for investors — While the borrower app seems perfectly solid, the investor app stands out with excellent data organization and visualization.
  • Available in most states — Prosper is available to investors in 31 states and counting.
  • Actual customer service hours — The P2P lender has live reps available M-F, 9am – 8pm EST and Saturday 9am – 5:30pm EST.

cons

  • Middling net returns — An average 5.8% net returns is just OK, and may leave some investors wondering where the rest of the high interest charged to borrowers is going.
  • High borrower fees — Prosper charges between a 1% and 5% origination fee on every loan, even for the most qualified borrowers.
  • Relatively slow funding time — Prosper funds loans as early as the next business day, while some competitors fund them in minutes.
  • No late/missed payment forgiveness — The lender has a built-in 15-day grace period but beyond that there’s no missed payment forgiveness like some modern lenders offer
  • Limited repayment term options — Borrowers can choose from just three- or five-year terms. Some of Prosper’s competitors offer a sliding scale between two and seven years.

How Does Prosper Work?

Since Prosper offers a totally different experience for borrowers and investors, I’ll break down each of them below.

Prosper For Borrowers

Borrowers on Prosper can take out two types of loans:

  • Unsecured personal loans
  • HELOCs
Prosper also offers a credit card called the Prosper® Card, which frames itself as a solid option to help someone with Fair credit (640+) start building or repairing their credit score.

But it’s not one. With no rewards, high regular APR, and the audacity to charge a $39 annual fee after year one, the Prosper® Card has bafflingly little to offer credit-builders. Google “credit-building rewards cards” and you’ll instantly find at least 10 better options.

Back on the lending side, Prosper’s personal loans offer the following terms and fees:

  • Loan amounts — $2,000 to $40,000
  • Rates (10/22) –– 6.99% to 35.99%
  • Credit required — 640 for new borrowers, 600 for returning borrowers
  • Origination fees — 1% to 5% of the total loan amount
  • Late fees — 5% of the payment amount or $15, whichever is greater
  • Prepayment penalty — $0

While I commend Prosper for accepting borrowers with Fair credit, there’s very little here to attract more qualified borrowers. If you have Very Good or Excellent credit, you’ll find better rates, terms, and certainly lower fees elsewhere. The fact that Prosper charges a minimum 1% origination fee – even for its most qualified borrowers – is certainly a turnoff.

That being said, it wouldn’t hurt to at least get a quote from Prosper just to see if the 1% origination fee is worth it. For starters, Prosper only takes a soft pull of your credit to provide personalized rates, so you can see your offer risk-free. Second, Prosper charges no prepayment penalty, meaning if you pay off your loan early, you don’t have to pay any of your outstanding interest.

Zero prepayment penalty is a huge plus for borrowers with Fair credit who think their income may rise in the near future.

Prosper For Investors

As a peer-to-peer lender, Prosper also lets you play the role of investor, browsing funding borrower loans in exchange for a nice trickle of interest.

Prosper boasts that the average historical returns for their investors since 2009 have reached 5.8% APY, up from 5.1% a few years ago.

That’s not bad, but it’s honestly not as high as I was expecting. According to Prosper’s latest Performance Update, their weighted average (WA) borrower rate was 14.45% APR across all loans. And with a borrower default rate of just 3%, I can’t help but to wonder: Where is the rest of all that interest capital going, if not to the investors?

Or is there a high rate of borrowers taking advantage of that early prepayment option (and costing investors interest)?

Putting aside the head scratching return figures, Prosper’s other big offering to investors is a slick mobile app. Rated 3.9 and 4.7 stars on the Play and App Store, respectively, the Prosper: Invest app lets you browse loan options by credit rating and yield, get a clean view of your portfolio, and fund loans without the need for a laptop.

Heck, you can even add a widget to your smartphone’s homepage to view your investments at a glance.

Prosper’s Post-COVID Performance

Is now a good time to join the Prosper investing community?

To find out, let’s see how the P2P lender has been performing in a post-COVID financial landscape.

Prosper Performance Update – August 2021

If we compare Prosper’s Performance Updates for August 2021 and August 2022, we can extract a few key trends:

  • The percent of loan originations that were rated AA-B has remained relatively steady
  • Average applicant FICO scores have remained steady
  • Loan sizes are increasing
  • Weighted average (WA) borrower rates (interest rates) are increasing
  • Default rates have remained steady
Prosper Performance Update – August 2022

In short, Prosper borrowers are borrowing more money at a higher rate than they were at the tail end of the pandemic. That’s good for investors, who in turn have seen their average returns rise from ~5.1% to 5.8%.

How to Open a Prosper Account

For Borrowers

For starters, getting a quote from Prosper is a quick, easy, and painless process.

I say “painless” because thankfully, Prosper lets you see personalized rates without affecting your credit score — also known as a “soft pull.”

Using an exceptionally clean and simple quote wizard, Prosper will prompt you for your requested loan amount.

It will also ask you for the purpose for the loan, contact info, and more.

Once you enter your information, you’ll get a personalized quote offer via email within minutes.

Should you choose to accept it, Prosper will prompt you to complete a full application, ask your approval for a (required) hard credit check, and provided you’re approved, fund your account in as little as one business day.

Once you’re in, you’ll want to set up autopay so you don’t miss a payment and get hit by the 5% late fee. You can monitor your loan progress and make payments either online or via the Prosper: Personal Loans app:

Prosper Personal Loans on the Play Store

Now let’s cover the investing side.

For Investors

The process of opening a Prosper Invest account looks a lot like opening a regular brokerage account. You’ll enter contact info, tax info, choose from two account types (General Investing or IRA), and sign some legal forms. The usual.

Once your account is approved, you’ll be able to fund it using direct deposit and start browsing loan options.

Loans are ranked by credit rating (B, A, AA, etc.), Yield, and funding progress.

The Prosper Invest app does a remarkable job of displaying all of the essentials like Yield, Amount, and even Loan Category in a tighter window:

Finally, I like how Prosper visualizes your portfolio with bubbles based on risk:

Overall, Prosper’s account creation process and user experience are two of its strongest qualities. From dedicated apps for both borrowers and investors to clean data visualization, you can’t fault Prosper for usability.

Alternative & Comparison

HighlightsLending ClubYieldStreetProsper
Rating8.587.5
Min. Investment1000250025
Fees1%/yearAverages 2%/year; depends upon deal1%/year
Accredited Investor
Lending ClubYieldStreetProsper

Which States Are Open to Prosper Investors?

On the investing side, you should know that Prosper is only available to investors from the following states:

  • Alaska
  • California
  • Colorado
  • Connecticut
  • Delaware
  • District of Columbia
  • Florida
  • Georgia
  • Hawaii
  • Idaho
  • Illinois
  • Indiana
  • Louisiana
  • Maine
  • Michigan
  • Minnesota
  • Mississippi
  • Missouri
  • Montana
  • Nevada
  • New Hampshire
  • New York
  • Oregon
  • Rhode Island
  • South Carolina
  • South Dakota
  • Utah
  • Virginia
  • Washington
  • Wisconsin
  • Wyoming

For the most up-to-date list and any income requirements that might apply in your state, check here on their compliance page.

What Are the Risks of Investing With Prosper?

Normally this is where I’d say that investors on P2P lending platforms generally face two risks:

  1. The risk that their borrower defaults, and
  2. The risk that the platform itself goes bust

After all, modern fintech companies tend to face their first true trial-by-fire around year three. That’s when the seed capital starts running out, early adopters trickle off, and in some cases, the SEC starts poking around.

In the case of Prosper, all three happened right on schedule in 2008, three years after the company’s founding in 2005. As if the unfolding Recession weren’t enough, Prosper was hit with a cease-and-desist order for selling unregistered securities and a related class action lawsuit from its borrowers.

Point being, Prosper has already survived a rather grisly trial-by-fire and outlasted countless competitors. As a result, there’s a rare level of stability to be found investing through Prosper.

Your chief risk, then, is borrower default. Although the average default rate sits at 3%, you’re better off doing your own due diligence on each prospectus.

Prosper also has an excellent blog on hedging your risk with consumer loans. In a word: Diversify — especially if you’re seeking double-digit returns from subprime borrowers.

But if you ask me, there’s a third hidden risk of investing with Prosper: The opportunity cost. 5.8% average net returns isn’t even high enough to hedge against inflation. Heck, even Series I Savings Bonds pay 9.62% through November 1st, 2022, and they’re Treasury-backed and risk-free. Some would also say that scooping up index funds during our current bear market would provide much higher returns, too.

Related >>> 6 Best Inflation Hedges To Protect Your Portfolio

But in the end, it comes down to your own risk tolerance and personal preferences. P2P loan investing is just another option, and Prosper is a well-built marketplace to get started.

The Takeaway: Prosper Is Tried, Tested and True — If You Can Forgive Tepid Returns

Prosper’s greatest strengths are its transparency, usability, and robustness. While you may have to accept that most loans will produce single digit returns, it’s still a safe and well-rounded place to invest in your first P2P loan.

Future-proof your long-term investments >>>

Chris Butsch

Chris helps young people prosper - both mentally and financially. In addition to publishing personal finance advice for Investor Junkie and Money Under 30, Chris speaks on the topics of positive psychology and leadership through CAMPUSPEAK and sits on the advisory board of the Blockchain Chamber of Commerce.

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35 Comments

  1. Pretty happy with Prosper, averaging just over 20% on my return and have been investing with Prosper since July 2019. I dont purchase loans if i dont like them; i wait till something pops up i like. Dont rush with a bunch of cash if you dont know what your doing. My strategy, not for all, is to focus on notes over 20% yield. Yes they are higher risk but the reward is woth it. After 2 1/2 years my $10,000 investment has grown to just under $16,000. I am very selective in my loans! Even with 4 charge-offs i have eared $20% return and still have $4,000 of my investment sitting in available funds because im waiting for the loans i like. Last, i diversify! I have invested in about 75 loans, but it took me a while to invest into that many. Good luck and invest smartly!

  2. I would highly recommend NOT putting money into Prosper.
    9 months ago I invested $25k into the account. I chose 15 different investments, ranging from AA to B rated. So far within the last 5 months, 2 of my A rated investments stopped paying and Prosper has the loans listed as “Charged Off” and the money is gone. They are showing my “return rate” as -9.93% right now. I could understand if I picked D level investments but this is ridiculous to have 2 defaults so fast on what Prosper said was better quality loan candidates. Maybe it’s covid related and that’s why people aren’t paying back their loans. Not sure, but I am definitely never putting money back into a Prosper account again. I’m hoping to just get back most of my initial investment. I still have about 27 months left on all of these 36 month loans so will see how this goes.

    1. You invested $25k across only 15 notes?! I’m sorry to say it, but it appears you made a huge mistake by not diversifying enough. You’re only required to invest $25 per note. Ballpark, I’d say you want at least 100 notes in your portfolio.

    2. You have to know how to invest depending on the type of investment.
      $25K divided by only 15 loans? This is definitly NOT the way to invest in Prosper. First, you need to diversify within Prosper. I have about $4,000 invested in over 100 loans, and I started by testing the waters by putting $25 in each loan. Now I go up to $40 or $50 IF I really like the loan’s profile. I mean, if you want to go nuts, you can probably put $100 per loan. Second, you have to apply a search criteria that filters the loans properly according to how much risk you want to take. It is not just about the rating. I look into the details and profile of each loan and the history of the person based on the information provided. I find only anywhere between 0 to 6 loans that I can invest in daily. Third, yes, it takes a long time, but you keep adding few loans every day. You start small and keep adding. If I had $25K in there, they would be invested in hundreds of loans.
      This isn’t a CD that you just throw money at and sit back and collect. You have to be selective and slowly build a portfolio over a long period of time.

    3. I only fund B-E, never AA,A. With 17% defaulting I stil returned over 20% annual.

  3. I love Prosper! I started investing last March [2020], started with a few deposits of 2k each. I was hooked. Started contributing 200/wk. I initially was using the auto-invest feature…DO NOT do this! It will invest your money into very crappy risky notes. The way to do it is to create your own filter. I have only had two defaults so far, both from me initially using the auto-invest feature. I currently have 9 late notes out of 1100, 5 of which are from auto invest.

    I took out a $25,000 personal loan in August at 5.19% to invest into Prosper. Account is now up to 39k with 10.55% return, which is still rising since I switched to not invest into anything yielding less than 10%. I’m guessing my return will rise to at least 11-11.5%.

    Latest thing is I just signed up for a Roth IRA to also invest in. The name of the game for Prosper is your investment filter and keeping your per note investment low. I keep mine between .1-.2% of account value.

    Best of luck on your own Prosper adventure!

    1. Good luck, it is a pretty risky strategy to borrow money to invest with borrowers! I have a 20k investment in Prosper using an automatic profile. I’ve averaged 6.5% for three + years. I am a bit worried about the pandemic driving up the number of defaults, but Prosper is providing options to borrowers and my return has actually risen some over the last year.

      If you are looking for options outside of stocks and bond, it seems a decent choice.

  4. Prosper lending was never a good investment but lately the bottom has fallen out of it. I would not doubt that some lenders take out Prosper loans after losing money through their investments and after finding out how easy it is to steal money from Prosper investors! The default rate in Prosper loans is greater than many other programs and it is entirely due to Prosper’s sloppy vetting of borrowers and their unwillingness to follow up on late payments. Borrowers know this. Prosper is just a method to transfer your money to borrowers without having to pay it back. That is, after Prosper takes their cut!

  5. Yeah, I had a terrible experience wit investing in Propser. My first year was consistently good, but I have had a negative return on investment for the past 18 months. My loans are centered around high B rating with 70 percent above C. Yet they are defaulting and charging off like crazy. I’m looking forward to getting my money out of there.

  6. I tried to open a Prosper Investor account so I could learn more about P2P lending as a concept overall for some research i’m doing at my job. I created an account but wasn’t able to actually invest because they needed me to verify my identity by Faxing a copy of my drivers license or ID or email it. I said I didn’t think it was very safe to email this because of security reasons and they said to use an Encryption Software which would cost me money to buy. I thought this was weird that such a progressive looking company operating in an online marketplace wouldn’t have a portal or secure way of sharing my information. I said “who is your target audience, if a key touch point of your company is faxing something, is it 90 year olds? And I said, how often do you turn away potential new investors?” I decided not to move forward, seemed to risky. I’m disappointed because I was impressed with the concept and they stand out as a top player for P2P lending. Is my experience representative of what I would encounter if I did join and invest?

  7. i invested 1000 in march of 18 and have about 40 loans with a return so far of 13,5% i have been reinvesting 25 a loan but would like to know what % to set my available cash to get a monthly return that is consistent in other words to balance my investment with my returns as to use for income. i know it wont be much to start out with and thats fine …. thanks in advance…

    1. You will have to check your monthly statements to see how much interest vs. principal you get each month, take the percentage you want from the each month’s interest, and re-invest the rest.

  8. I no longer invest through Prosper for these reasons:
    1. When one of your borrowers defaults, they charge you to collect.
    2. When one of your borrowers defaults, they try to collect for only 120 days, after which they actually state that they stop trying. After all, the risk is all yours!
    3. They can take forever to process an investment. Meanwhile, while your money is in a “pending” status, they earn interest on it and you earn nothing.
    4. They take forever to process payments. When a borrower pays, it takes a long time for you to get your money.

    Factor all this is and you will see that your interest rate is less than you think.

  9. I’m in the same boat Dave. I have to reinvest my cash balance but there are almost no loans to invest in. I know in the past there have been spells where the loan selection has been on the light side, but nothing like it has been these past few months.

    Like you, I can’t find any press or postings about the lack of loans for investors at Prosper. I can only guess to as to what is going on.

  10. Why are there virtually no loans to invest in on Prosper any more. In the last few months the list of available loans has gone from 75 or so to maybe 5-10 and sometimes zero on any given day. Are they just not writing new loans or are the big investors getting them all before we get a chance to look at them. I pull it up at 12:02 EST right after new loans hit. Can’t even re-invest my earnings anymore as there are no loans to invest in. Anyone else having this problem? Are they going out of business? I can’t find any press about it.

  11. Prosper openly tells borrowers that after onoy 120 days they charge off any loans in default. Since they bare no risk when a borrower stops paying, they have little to gain by aggressively going after a borrower in default. This single aspect of their program makes it too risky for many lenders and I now included myself in that group. One bad loan and you will be in the red with Prosper.

  12. I love prosper, but I didn’t always love it…

    I first invested in Prosper back in 2007 with high hopes and a personal commitment to helping out good people who needed loans. When perhaps 15% of my borrowers defaulted in 2008, I pulled out all my money in a huff. I re-read the old listings with disgust, penning angry messages to the people who had stiffed me. There was something especially infuriating about being stiffed by real people rather than impersonal stocks and bonds. Then, in August 2015, I began thinking about the performance of my friends’ brokerage accounts in 2008. It finally dawned on me that my .02% return for that year was a heck of a lot better than the returns of anyone else I knew!

    I had learned a few things in 2008, so I began investing again, using my knowledge to build a better portfolio than before. I mostly focus on “high risk” loans now, with a few other limits not too different from those mentioned in the article above. After almost two years, my “seasoned” return is 14.24%. Perhaps 200 of my notes are actually “seasoned”. My notes initial returns are generally between 20 & 23%, so I get a good number of deadbeats. But who cares? I’m making great returns, and I never bother to look at the loans. Instead I use auto-invest to set it and forget it. It’s a beautiful thing!

    The website stinks. There is no excuse for such a lame interface. But I’ve mastered it, and I get solid returns, so I’m going to keep coming back. At this point, I have over $30,000 invested in Prosper notes. I have recently divested myself of a rental property and feel that my Prosper loans are nearly as profitable, with zero leaks and no noise complaints. Where I used to spend 10 hours a month fixing broken stuff, I now spend virtually no time at all.

    I also have an outstanding $12,000 Prosper loan at 6.6%. The possibility of this kind of loan arbitrage on Prosper is an added benefit. I love that I am effectively netting 7% (minus taxes and fees) on borrowed money. How cool is that?

    Anyhow, Prosper isn’t for everyone and, to get the best returns, it must be done with thoughtful, practiced, automated investing or you’ll waste a ton of time. Master the auto invest feature and plan to invest in 100 loans minimum. Don’t take anything personally, just try to imagine which type of people are likely to pay their bills. Don’t bother with “A” rated loans. In 2008, my “A” loans defaulted just as often as my “C”s & “D”s, but with way less profitability. Spread your initial investment over 3-6 months and then let your investment “season” for a year. After a year, notice what worked and what did not work. See if you can identify trends. If you’re anything like me, you’ll start to build a higher “risk” portfolio focusing on certain types of borrowers. With my own formula, I’ve found that “high risk” has been more than offset by a 200+ note portfolio and higher interest rates. The term “risk” only applies to the individual loan, not so much to a large basket of loans. I’ve stopped caring if Jim in Montana stiffs me for $17. So long as I’m making money overall, it just isn’t worth my time to care.

    1. I am in the process of cashing out of Prosper. I have lost all faith and confidence in their ability to be honest. So much so that I read your post and wonder if you actually work for the company as apposed to invest in it. After several years of investing with well over 300 accounts, the best I am getting right now is 3.21% annualized net returns. Even though I set up the automatic purchasing of accounts to be a nice bell curve, I have ended up with a perfect ramp, 28% in AA rated down to 2% in HR. In the beginning I was told I was earning 8 to 12% depending on the months, but this continues to decline. I have stopped all reinvestment and will track very closely what happens as I pull out… like I say, I do not trust Prosper.

      Just my 2 cents… which may not be worth much.

    2. My experience is similar to Karl’s. I started in 2013 and like Karl it took me a year to figure out what worked and what didn’t. I barely broke even the first year with my $1000 investment. I’m now putting in $50 per week and reinvesting earnings. My lifetime annual returns are 10+% with the past two years north of 14%. I have almost $20K invested across 1043 loans of which 30 are currently late. I never put more than $25 in a single loan and only invest in B and riskier loans.

  13. Prosper’s website is abysmal….I’ve been an investor for 3+ years and when they changed to this beta version things have been unstable ever since. It’s been a “beta” site for well over a year and you never know if what you click on is going to take you to what you expect. I’m letting my investments run out and moving off Prosper for good.

  14. Prosper terminated its relationship with Folio Investing on October 31, 2016, so a secondary market is presently not available for Prosper notes. Notes must now be held to maturity unless/until Prosper finds and offers another secondary market.

  15. Perfect, thanks Larry. I opened an account with Prosper at the end of last year and still haven’t funded it or started investing. However, at this very moment I’m on my way! Just transferred $5k and am going to give it a go taking your advice/experience into consideration.

  16. In my experience, Prosper has consistently outperformed Lending Club. I put $25,000 into managed accounts on both Prosper and Lending Club about 2 1/2 years ago. The only difference is I have Prosper set to invest $50 per loan, where Lending Club invests $25 per loan. With $25,000 in each, I’m very well diversified. However, all loans are auto invested. I don’t spend any time on it at all. With a completely hands off approach, here are my results:

    Lending Club
    Initial Investment – $25,000.00
    Current Balance – $29,382.13
    Return – 7.34%

    Propsper
    Initial Investment – $25,000.00
    Current Balance – $32,137.39
    Return – 10.28%

  17. I have invested with Prosper since 2007 AND my return pre 2009 averaged a 16% annualized.
    Right now I average 11.6%
    I did not invest in 2008, 2009 and got back at it in 2010
    I strongly suggest hand picking your loans pretty much the way Larry L. suggests doing in his great article.
    The auto invest feature is neat, but you end up buying a lot of junk.

  18. I started investing in Prosper right from the very beginning, sometime during their first 3 months of existence. I made money early, then when the economy tanked I had bad luck with prosper. I typically invested $50 per loan, sometimes $100, but there were 3 loans that I invested $300, $300, and $250 in and all 3 of those defaulted. I had about $5500 invested at that time, and I slowly started to pull it out.

    Fast forward to 2011, I had about $1500 still invested. Things had mostly been good with the loans I still had with a very small default rate. I start investing again. I only invested $25 or $50 and went no higher this time. I mainly stuck to A and AA loans with an occasional B loan. I decided to take the safe 6%-8% over the riskier 10%-20% returns.

    I built my amount invested back up to $3000 and have made solid returns since. I made back the $850 I lost in those 3 big loans and then some.

    I would post my exact numbers, but yesterday when I went to check prosper it was down, and now it’s still down and it has me concerned. That’s what brought me to the article….I was searching for any info on why the site was down.

    1. Prosper site is working fine now. Here are my stats.

      From 2006 to now I’ve invested $16,000 and earned 2.09%.

      2008 was the only year I lost money, (5.00%) and I had the most invested that year so it took awhile to get back to positive. In total, I’m $438 in the black.

      Currently I’ve earned 7.14% so far this year.

  19. I’m investing with both Lending Club and Prosper and the results so far (6 months) couldn’t be clearer.
    On Prosper:
    – About 200 notes (mostly A and AA, maybe 20% B) , 2 already charged off, fully 4%+ on their way there (more than 30 days late). This is just 6 months out. I think I could easily see 15% default rates by the 2 year mark. No way to make money with that kind of default rate.

    On Lending Club:
    – About 110 Notes (Mostly A & B, but I’ve got C and D notes as well) – One note late and that one is now on a payment plan so it is being rescued.

    It’s pretty clear to me that the Prosper process of evaluating loan applications has deep problems and is a magnet for scammers who can exploit it. Lending Club on the other hand seems to be doing something very right.

    1. In the interests of accuracy……………….. Anecdotal evidence to the contrary non withstanding, Prosper has actually outperformed Lending Club in each & every year since 2009. investor Junkie can provide us the annual breakdowns or one can easily look it up on Lendstats.com

      No offense Wayne, but small sample sizes of 200 & 110 prove nothing. Without a minimum sample size of 400-500 in LC & another 400-500 in Prosper, all comparisons/conclusions are HIGHLY suspect. This is something that can be confirmed by any 1st year statistics student.

      In case you’re thinking that I somehow favor Prosper, I invite you to do a search of my previous posts here which will provide ample evidence to decisively refute that notion!

      1. Dan

        Sample sizes of 100 – 200 are absolutely NOT small for evaluating default rates in this context. They might be “small” if you were trying to distinguish between very low default rates – like if a 1% rate were advertised and you experienced a 1.5% rate, could you conclude the advertised rate was probably a misrepresentation? That is not the case here though. In Wayne’s case it is easy to distinguish between an advertised rate of, say, 5% (I’m being generous. I expect the advertised expected default rate on A and AA notes is less) and a realized rate of 15%. If you assume 5% is the true population default rate and the notes are uncorrelated then the probability that 15 or more will default out of 100 is about 0 .0001 (Binomial n=100, p=.05)). So if Wayne actually did experience a 15% default rate we could conclude that either 1) The notes were highly correlated. Maybe they actually only belonged to a few individuals. Maybe the economy turned much worse during the period he held the notes, which causes defaults to be more related to general economic conditions; or 2) Whoever computed the expected default rate used improper procedures/made a mistake; or 3) Whoever computed the expected default rate was lying.

        Of course, Wayne doesn’t post a follow up, so we don’t know what his actual default rate was. If the only notes that defaulted were the ones he listed, that would be entirely consistent with a 5% expected default rate.

        I can see this is an old post, but I think my comment is relevant to the current discussion. It is highly unlikely anyone will experience a 15% default rate with more that 100 uncorrelated notes if the “true” rate is 5%. This result applies to the rate per number of notes. If the notes are equal sized, it also applies to the default rate per Dollar invested.

  20. Good review Larry. I agree that Prosper provides an excellent alternative to Lending Club, one that carries a higher risk premium (on average) but with higher potential returns to justify that risk. In hindsight Prosper’s initial underwriting model looked pretty stupid but having spoken at length with both founders I understand where they were coming from. They were trying to do something truly innovative – use social connections and peer pressure to minimize the risk of default. In Prosper 1.0 the social side of p2p lending is what was emphasized. And who knows, if we haven’t had the financial crisis, investor returns could have been very different and the social aspect might have remained.

    1. Do not use the Premier quick invest with prosper. I asked that no more than 50. be put in a loan and it is all I can do to get them to stop putting way more than that. the latest loan they put me in was for 300 to a person with 31 late payment and a default already on record. And calling them will only get you a run around.

  21. Thanks for this, I didn’t realize how much company I had in losing money with Prosper. I did, however, happen to choose about the worst time to invest–$10,000 during the spring of 2008. In the end, about 1/3rd of my loans defaulted and I lost about $600. I attributed this result mainly to the mortgage meltdown and resulting carnage, but who knows. I admit I’m a bit gun shy about trying either Prosper again or LendingClub.

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