My Very First Guest Blogger – James from Dual Income No Kids Discusses Lending on Prosper

I’ve talked about Prosper.com from a Borrower’s perspective, but I thought it would be nice to get a Lender to do a guest article to add another perspective in case anyone reading is thinking about lending on Prosper.

My guest blogger is James from Dual Income No Kids. He and his wife were just married (congrats!) and they share insight on investing as well as finances from a couple’s perspective.

So without further ado, here is James’ article:

First off, thanks very much to Tricia for allowing me to guest post on her blog. I have a great deal of respect for her because taking care of her debt head on.

Like many bloggers, my wife and I have been lending a bit on Prosper.com. While we only have a small amount of cash on the site ($450.00), and have only been there for a few months, we do have some guidelines we use when making our lending decisions, these are:

1) Credit. If someone has NO credit, or high risk credit, they DON’T get a bid from us. According to prosper, the default rate for these types of borrowers is 19 percent or greater. No joke, these types of borrowers can and do default on their loans.

2) Purpose of Loan. We like to see loans for sensible purposes. The best loans would be for things like buying real estate or starting a business. We also lend for debt refinancing, provided that the refinance makes sense, such as in the case of getting rid of 70% payday loans. We DO NOT like lending for frivolous purposes such as vacations, buying furniture, or home remodels. These kinds of things do not improve the borrowerâ€™s financial health and thus impede their ability to meet the loan’s terms.

3) Character. This is an intangible. However, if the borrower gives the impression that their debt is due to reasons beyond their control or if they seem irresponsible with money, they will not receive a bid from us. If you are borrowing on prosper, you should write a sufficient amount in your profile to convince potential lenders that you are trustworthy.

4) Demographics matter. All things being equal, we like to lend to older and married people because they are likely to more experienced and responsible.

So, there you have it. We factor four primary considerations when making our decisions: credit history, the purpose of the loan, character and demographics.

Happy prospering!

James H.

Posted by Tricia on July 24, 2006 at 10:23 AM in Blogging Buddies | 4 Comments »
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Through a Glass Darkly responded:
Posted: July 24th, 2006 at 4:03 pm
Are lenders on Prosper allowed to discriminate in ways that banks and other lenders cannot? I am not trying to make a point; I’m curious. In my profession, with my organization being a mortgage lender, we cannot discriminate based on age (though we can on length of credit history) or marital status.
Tricia responded:
Posted: July 25th, 2006 at 5:36 pm
I’m not sure about being a Lender on Prosper, but as a borrower I only needed to disclose what I wanted to disclose. Since I had my blog – Lenders had the ability to look at everything with me (such as age and marital status).

If Borrowers are not comfortable with disclosing their age or marital status they do not have to, unlike when they walk into a mortgage office.

Any lenders wish to comment?
makingourway responded:
Posted: July 28th, 2006 at 2:30 am
Through a Glass Darkly,

BTW, I liked the book.
Of course Prosper members are allowed to discriminate, they are making investments
on a personal basis, they are not licensed professionals.
They should have nothing to fear — then again — some prejudices might lead to social ostracism.

I do agree with James H on a few points:
1. older people are usually more responsible and have more to lose from poor credit practices.
2. credit is important – i actually try to stick with B or better.

I also disagree on certain spots:
1. home remodelling can add value to a home and facilitate resale or re-appraisal for home
refinancing.
2. people do have reasons to borrow out of their control (sickness of a family member), however, I also agree that they should demonstrate that they are responsible and will repay the loan.

There is also the opposite view – details do not matter – distribute your loans broadly and
in small amounts. The law of large numbers will pull your default rates closer and closer
to the statistical averages. It is incumbent upon you to ensure the interest rate
you lend out at incorporates and satisfies the statistal default rate.

Have a great weekend,
makingourway
Angie responded:
Posted: March 26th, 2008 at 1:04 pm
Do your homework done first if you are thinking about taking out a loan or mortgage. The time spent looking into your options can save you a good deal of money later on.