Michael from It’s Your Money was kind enough to answer a few questions from me about Prosper. If you are unfamiliar with It’s Your Money, it is a site full of financial information as well as nifty calculators and Excel spreadsheets. He also has two blogs, It’s Your Money: Money Musings and Debtspiration.
Without further ado, here’s my interview with Michael:
What about Prosper made it appealing to you as a Lender?
Being an internet dork, and a money dork besides that, I was fascinated with the Prosper idea from Moment One. “That is way too cool,” was probably my first thought. And a few seconds after that I was registered.
I had no need to borrow, thank goodness, especially at the rates effective on Prosper at the time. But the idea of lending on a peer-to-peer basis fascinated me. I was so intrigued with the idea of being a Prosper lender that once I’d done a bit of research, I honestly
couldn’t wait to get my experimental (paltry!) $300 transferred into Prosper so I could start bidding on loans.
I didn’t get in it to “double my money” with Prosper loans, or make a killing, or anything like that. More than anything I was fascinated with the idea of micro-lending as facilitated by the internet. I wanted to see how it would play out. And I wanted to have a front-row seat. (Those seats are expensive … for a reason.)
Do you feel that Prosper is a good avenue for those seeking loans?
At some level, if a borrower’s credit is less-than-perfect, then yes, I think Prosper should be given strong consideration. I’d go so far as to say that in its current form, Prosper constitutes a much better setup for borrowers than it does for lenders.
Lenders can see much more relevant info about borrowers now than we could when I originated the majority of my loans. But even with that, the risk/reward scale still comes down heavily on the side of borrowers, in my opinion.
How â€œpersonalâ€ are you with Borrowers? Do you contact them to ask additional questions?
Of my six open loans, I have only personally contacted one borrower either before or after the loan was originated. And I’m okay with that. I’m not interested in making Prosper a significant part of my investment portfolio, at least not right now, and certainly not in Prosper’s current form. If I were, I probably would be contacting all prospective borrowers. I would certainly be throwing a LOT more money into the Prosper ring in order to make the ROI more predictable.
Do you feel that a Borrower needs to join a group within Prosper?
Nope, not at all. I leave a borrower’s group affiliation out of my decision almost entirely. With 99 percent of the groups out there, when push comes to shove, group affiliation isn’t going to do a whole lot to get me, as a lender, my money.
Many lenders refer to a lack of â€œgood listingsâ€ (loan requests from Borrowers). In your mind, what makes a â€œgood listingâ€?
That’s tough to put into words, really. As a lender, I want to see listings that make sense for all parties involved. I want to see the benefits for myself, obviously, in the form of “safety” (if there is such a thing in the world of Prosper lending) and in an ROI that’s fair
for the risk involved. I want the loan to benefit the borrower in some way. I don’t want the loan to simply dig them a hole deeper than the one they’re (likely) already in.
I want the borrower to be willing to divulge enough financial details that lenders can have a reasonable picture of the risk they’re taking on. I want a borrower’s story to be consistent with the answers they give to lenders and group leaders who make personal contact.
Here’s the gist of it, and what lenders ultimately have to try to decide on a loan-by-loan basis: That person you’re loaning money to — are they on the way up, or on the way down?
Money is a two-way street. If you’re a Prosper micro-lender, you sure want to stay away from the downhill side of the road.
What one piece of advice would you give someone that is thinking of borrowing money with Prosper?
I’d suggest that they do some serious math, run the numbers, and see whether or not a Prosper loan really makes things any better for them. Taking on additional debt is ALWAYS something that needs to be examined from all angles. Too many times it’s an emotional thing: The facts and the potential stress and the hard dollars on the line get brushed aside by short-term “wants” and “shoulds” and “maybes.”
In the case of replacing one form of debt (say, high-interest credit-card debt, which is open-ended in term) with another (say, a fixed-term Prosper loan which MIGHT come at a marginally-better rate) isn’t always a good idea, either. Again, you as a borrower have to
crunch the numbers. Are you making tomorrow better for your family … or worse?
In the world of money, when you get right down to it — when you really wrap your brain around all the costs and the “benefits” — the instances are pretty minimal where a loan truly carries a borrower to a better place than the one he was in before. This is especially true in comparison to the total number of loans being made.
Finally, how satisfied are you with your Prosper Experience?
So far I’ve originated eight Prosper loans. Two loans paid off early, and I reloaned those funds. Considering that two of my current six loans are right now in late status, I’d be outright lying if I said that this has worked out as I’d like. However, as the clichÃ© goes, “Tuition to the School of Hard Knocks ain’t free.” And that is exactly why I have placed so little money on the Prosper line. (I didn’t like visiting the Bursar’s Office in college, either. Money always seemed to vanish when I set foot in there.)
Anyway, when I bid on these loans, I knew what I was getting into. The borrower info I had at my disposal was extremely narrow. I limited myself to loans where the borrowers involved had no worse than ‘B’ credit ratings. Yet I absolutely knew that credit scores tell you little about where a person is, right now, in life. And they tell you zero about what storms may be approaching borrowers’ doors and what thoughts are rifling through their heads. Any lender who thinks otherwise is pretty naÃ¯ve.
From the lending side, Prosper had made marked improvements lately, and I’m glad to see it. As a study in human behavior, financial psychology, and the market forces of supply-and-demand, there’s nothing else quite like Prosper out there (yet). I read the Prosper message boards frequently, and scan through loan listings as I have time. I still shake my head in disbelief at some of the loans that are getting funded.
In a way, it’s nice not having any money in Prosper available to loan. It means I can just sit back and watch my non-late loans accumulate interest … and watch everything else that goes on at Prosper just for the entertainment and/or educational value of it.
Will I be loaning more money on Prosper in the future? Don’t know. Only time will tell. For now, Prosper is just a sideshow in my personal financial circus.
Thanks Michael for the interview 🙂