Would You Lend $750,000 to Complete Strangers? This Man Has

Prosper.com launched early 2006 as a place where everyday people could go to borrow and lend money. Some refer to it as the “eBay of personal loans.” I am fascinated with the Lending side of things, although I am a borrower there. I decided to ask the person with the most money invested in Prosper for an interview. He goes by the name pensioner and he was very kind and answered a few of my questions via email.

Without further ado, here is my interview with pensioner…

You joined the Prosper community in July of 2006. What made you decide to join Prosper?

Prosper listed 1000 loans that could be had for rates up to 29%. I was intrigued to see if I could lend money at more than 20% to folks that would pay me back 95% of the time.

You have invested $750,000 in Prosper. When you first started lending at Propser, what were your expectations as to how much you would lend? If it has changed from when you first started, why did it change?

My initial thought was to put in $10,000 as a test, to see if I could lend at high rates to people that were likely to pay me back. I was thinking that I could put in several hundred thousand or more. I quickly decided to put in about a half million, then decide where to go from there. Within a couple of months I put in another quarter million. I now have $750K in (which has grown to $812K). I think I am at the right level now.

Most lenders lend smaller amounts over many loans. Propser even recommends this on their website. You have gone against the convention and frequently lend large amounts (you have even lent $24,950 on a single loan). Why?

So many lenders think that if diversification is good, more diversification is better. But diversification has a cost. More money can be made by selecting a small number of great loans, instead of a mix of good and great loans. Diversification should be measured broadly, considering all assets. It is not necessary to diversify each asset class, such as Prosper.

Part of the appeal of Prosper to some lenders is the personal aspect of it. How personal are you with borrowers?

Not very. I enjoy getting a â€œthank youâ€ when I fund 90% or 100% of a loan. I sometimes respond with a few pleasantries and share a bit of information about things that we have in common. I sometimes use the opportunity to show borrowers that they are dealing with a real person, not an impersonal institutionâ€¦hoping that they will consider the effects of not paying me back.

Prosper has the option of creating standing orders. The computer will bid on your behalf if a loan listing meets certain conditions (interest rate, credit grade, # of delinquencies, etc.). What are your thoughts on standing orders?

I donâ€™t like them. I want to take a minute to see if the borrower has a reasonable story. If I were making $50 bids, I would not have enough time to read listings, but I typically bid several thousand. I have, at times, spent as little as 15 seconds reading a listing before bidding, but I always spend at least a little time reading their story.

Your current estimated risk adjusted ROI at Eric’s Credit Community is 18.7%. Now that you have been around Prosper for a while, do you feel that number may be accurate? What ROI would make you pleased with your Prosper experience?

Originally, I expected returns of 18% to 20%. I now think my returns will be more like 15%. I am happy with 15%. If my returns drop to 11% or 12%, Iâ€™ll start moving money back into stocks and mutual funds.

Is there anything else that you would like to share about your Prosper experience?

Some days I feel badly that most people with low credit scores cannot get funded on Prosper, but on other days it seems like most people are where they are through their own choices.

Lastly, wondering minds are probably curious about this one. Do you get any special “perks” from Prosper for being the leading investor? If so, can you share with us what they are?

I have not received any discounts or other perks that translate to money in my pocket. I was taken out to lunch by the CEO, Chris Larsen, and the VP for development, Karen Appleton; and I did get a nice tour of the Prosper headquarters in San Francisco. They have a nice place on the top (33rd) floor where NBC Broadcasting used to be.

Thank you pensioner for the interview

To read more about Prosper, including more interviews with lenders as well as my own borrowing experience, please visit my Prosper.com archived articles.

NOTE: I also asked pensioner one other question unrelated to Prosper, and I will be writing about that later this week

Posted by Tricia on January 28, 2007 at 1:27 PM in Prosper Borrowing | 17 Comments »
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» Carnival of Personal Finance #85 @ fivecentnickel.com responded:
Posted: January 29th, 2007 at 7:18 am
[...] Tricia presents Would You Lend $750,000 to Complete Strangers? This Man Has posted at Blogging Away Debt. [...]
Lazy Man and Money responded:
Posted: January 29th, 2007 at 12:27 pm
If he’s making 15% as he suggests (and I believe it) he’s doing pretty much what I was hoping to do. He’s making enough per month to live pretty comfortably on. I don’t want to put all my eggs in Prosper, but it seems like a pretty nice basket for some eggs.
Kathryn responded:
Posted: January 29th, 2007 at 3:37 pm
I’m really glad you thought to interview Pensioner. Both you and he show a lot of insight.

Your blog is wonderful. It’s inspiring how you continue to find ways to think outside the box, get out of debt, and reclaim your financial life.

You and your family have done a tremendous job. Thank you for sharing the experience so others of us have a light leading the way and don’t feel like we’re alone in the process.
starfish35 responded:
Posted: January 29th, 2007 at 10:21 pm
Great article! Pensioner sure is a good sport, maybe you could try to interview L5 or muleshoes next!
Matt responded:
Posted: January 30th, 2007 at 8:40 am
The idea of prosper has totally intrigued me; but I unfortunately can’t take advantage of it myself being outside of the US. Thanks for posting this interview up; this man is doing exact what I’d love to do if I had some spare cash.
SCapitalist responded:
Posted: January 30th, 2007 at 8:50 am
Wow, fantastic article! Well done!
Amillionby40 responded:
Posted: January 31st, 2007 at 4:32 pm
This was a great interview. I read the other Prosper posts with great interest as I am a new lender with Prosper. I think it’s great that you are sharing your experiences with others through this blog. Keep up the great work!
Amy responded:
Posted: February 1st, 2007 at 4:39 pm
I have been following this site since inception. There is a similar British site, Zopa.com.
It is not fraudulent, but they will verify that you are who you say you are. The CEO and originator was the former CEO of eloans.com.
Great track record to-date.
RateLadder.com responded:
Posted: February 5th, 2007 at 5:55 pm
[...] BloggingAwayDebt has a prosper loan as a borrower and recently interviewed Pensioner: http://www.bloggingawaydebt.com/2007/01/would-you-lend-750000-to-complete-strangers-this-man-has/. [...]
RateLadder.com - Prosper Lending, Loan, and Rate analysis responded:
Posted: February 5th, 2007 at 6:13 pm
Pensioner claims he isn’t diversified but I would like to point out that he has at most 25,000/750,000 ~ 3.33% percent of his prosper portfolio in a single loan. The standard diversification for money runners is 2% at most so he is pretty close.
The Frugal Law Student - » Carnival of Personal Finance is up at Five Cent Nickel responded:
Posted: February 7th, 2007 at 9:27 am
[...] Blogging Away Debt asks “Would you loan $750,000 to complete strangers?” [...]
ProsperLoansOnline.com responded:
Posted: February 27th, 2007 at 5:26 pm
Wow, ask and ye shall receive. Pensioner has been somewhat of an enigma to some among the prosper bulletin boards. All in all, I’m just glad to see that “he” is human and not an institution. PS for more info and how-to, please see the site.
EA responded:
Posted: March 1st, 2007 at 9:57 am
I’m impressed with his skill in picking loans. I have made 6 (tiny) loans through Prosper: one was paid off early, one has NEVER paid, one is late and one is very late. So two are paying on time, which means I’m pretty bad at picking borrowers.
ProsperLoansOnline.com » “Pensioner” - A Prosper.com Gambler or a Visionary? responded:
Posted: March 25th, 2007 at 3:03 pm
[...] recently read an interview with “Pensioner” and wanted to share it with everyone. So just who is [...]
Carnival of Personal Finance is up at Five Cent Nickel | The Frugal Law Student responded:
Posted: May 19th, 2007 at 2:16 am
[...] Blogging Away Debt asks “Would you loan $750,000 to complete strangers?” [...]
pat responded:
Posted: October 3rd, 2007 at 9:55 am
I want to second the idea of interviewing other top lenders. With that said, as of today pensioner has 15% of his loans defaulted and 20% late. Even with the high weighted apr of 26.37%… It is my opinion that there is little chance of him getting 15%. I doubt that he can even hit 10%, and the ericcc num of -5% is probably overly conservative but much closer to what he’ll actually return.
Aaron responded:
Posted: March 7th, 2010 at 3:04 pm
Someone should do a follow up story on this. Pensioner took a bath on most of those loans.