This is a bit of a different topic than I usually post here, but I read about this site last week, and took a look at it the other day.  Seems very interesting, figured I would pass along my thoughts.  You always read about great returns on your money, how many of those claims are accurate?  This site offers a range of return on your money, and has an innovative approach.  This return is not with stocks, not with a pyramid scheme, but a legitimate business model that works and can show historical returns. 

Prosper.com is a peer to peer lending site.  People go to the site who need a loan, and they are put together with people who have money to lend.  It’s a pretty nifty thing they have going, and fits a bit with what my private investors do on hard money real estate transactions.  It is passive income, pays better than your savings account, and you’re helping people.  Only thing I don’t really like about this model is that there is no security to your investment like you would have taking a first deed of trust on a property.  Looking at their historical numbers, however, it seems the default rate is rather good, worth a look, if only for an interesting read.

Prosper allows people who need to borrow money put a posting up, stating how much they need, the interest rate they are willing to pay, and other details.  Prosper pulls their credit report and lists a credit grade for them.  This credit grade will tell you how high of a risk the borrower is.  You decide to lend to a borrower, prosper puts the loan together, services the loan and pays you as payments are made on the loan.

The good thing about their setup is that you don’t have to loan any single person the full amount they are asking for or the full amount you have to lend.  If you have $2,000 to lend, you can lend 20 people $100, spreading your risk out among many people, and keeping your returns safe in case of a default.  If someone is looking for a $10,000 loan, you can contribute $100 and other lenders will make up the difference.  If a borrower does default, you don’t have to try to collect the money, the website takes care of that for you.  Worst case scenario is if your loan is not repaid.  If this occurs (and it looks like there is about a 5% default rate, 1 out of 20 loans)  it gets sold to a collection agency, you get paid a portion of what they sell it for and the borrower gets a collection ding on their credit.

Prosper also will manage a portfolio for you.  If you want to be more aggressive with your investments, you can potentially realize a better return.  If you want to minimize your risk, they can put that type of portfolio together for you as well, lending only to A credit borrowers with no late payment history.  They also have programs that fall in between.  You can target a desired return rate, and they will build a portfolio around that, taking into account the historic default rate for the types of borrowers you are lending money to.

It is a very well set up site, you can be a lender without doing much at all, no servicing of loans, no collecting payments, no checking credit.  They do it all for you, take care of the contracts and send your loan payments to you.  The loans I handle are all secured by real estate, so this is a bit different, but it is an interesting business model, and looks like they have lent a good amount of money.  You can make 9%, 10%, even 12% return on your money depending on how aggressive you want to be. 

You can also go set up an account to borrow money.  I talk to a number of people all the time looking to borrow for business purposes, remodel purposes, etc, but do not have the real estate collateral for me to be able to help them.  This may be an ideal place to find a loan that you are having trouble obtaining.  Take a look at the site, I believe there are a few out there like this one, but never heard much about them until reading a newspaper article last week. 

Interesting tidbit for the day, please drop me a line if you have used Prosper.com and let me know how it’s worked out.  Check back in, I’ve been stewing about this economic relief package the past few days, I think it could be something to jolt us out of the housing rut we’re in right now.  I’m going to detail my thoughts on that tomorrow.