Your guide to peer to peer lending

Prosper Aggressively Courting P2P Investors This Month

by Peter Renton on March 21, 2011

It seems like I am getting an email once a week from Prosper these days touting some kind of special promotion for investors. Both Prosper and Lending Club have routinely offered investor incentives but Prosper has certainly increased their activity on this front recently.

Prosper has come a long way since late December when they switched away from the auction based lending model and there was often less than 30 loans available for investors on their platform. Today, the number is ten times that; as of this writing there were 302 loans available for investors. They are obviously having little trouble attracting borrowers so they have turned their attention to wooing investors.

Wanted: P2P Lenders Who Handpick Loans

Prosper p2p lender promotion March 2011The latest incentive is a little puzzling to me. When you go to Prosper’s browse listings page you are greeted with 25 “featured” loans. There is no explanation as to why these loans are featured, but it is clear that Prosper wants investors to put their money into them. The latest 3% cash back incentive is just for the 25 loans featured on this page, it does not apply to any other loans on their platform.

They want investors to manually invest in these featured loans. If they do, and the loan is successfully funded, then Prosper will provide 3% cash back of whatever amount was invested. But you have to act fast – even though this special offer has been extended once it is scheduled to end at 11:59pm this Wednesday (in two days). You can read all the fine print here. Interestingly, this offer is not available to people who invest in these loans through automated plans, you have to invest manually through the featured listings page.

When I browsed through the 25 featured listings today I noticed a broad cross section of loans. They ranged in terms from a AA rates 3 year loan at 5.55% to a D rated 5 year loan at 27.99%. These certainly weren’t the best loans on their platform and most of them didn’t meet my loan criteria. About the only thing I saw that they had in common was that they were all ending soon (within the next 24-48 hours) so maybe they needed an extra push to get funded.

I am not sure if many investors who handpick their loans will be swayed by the 3% cash back. My guess is the purpose of this incentive is not so much about these loans. Sure, it might bring a few more dollars into these loans but I suspect what Prosper wants most is for you to visit their site. If an investor takes the time to login and view these loans then maybe they will stick around and invest in other loans. It also gives them an excuse to keep their name in front of their investors in an email.

Two Incentives Running Right Now

The incentives don’t just stop with the featured listings. In addition to the 3% cash back on featured loans, all month Prosper is offering a 2% cash back bonus to investors who kick in $25,000 or more. This applies to automatic or manual investors and is good for any loan funded during the month of March. While you can’t combine these two incentives, Prosper will make sure you get rewarded for the incentive that is the larger of the two. Here is some fine print from the 2% cash back promotion:

The promotional period for this offer will start on March 1, 2011 at 12:01AM, and finish on March 31, 2011 at 11:59PM, and all rebates will be paid by April 30, 2011. Only investments in loan listings placed during the promotional period that become funded Notes before the payout date will be considered “invested”. Invested funds can only qualify for one cash back promotion; in the event that a given investment qualifies for two different such promotions, the investments will count toward the qualification thresholds, if applicable, and the lender will be paid the higher of the two rebate amounts.

So Prosper has an incentive that anyone can partake in (there is no minimum on the 3% cash back on featured listings) and one incentive to encourage high rollers to invest more dollars.

Prosper’s Loan Volume is Increasing

During my discussion last month with Jim Caitlin, an EVP at Prosper, he suggested that volume at Prosper was about to take off. So far he appears correct. Loan volume looks like it is trending up nicely with month-to-date (MTD) loan volume up around 11% from February and around 29% from January. They are still well behind Lending Club’s numbers ($7.4 million vs $2.3 million MTD) but the trajectory is positive.

I would love to hear from other Prosper investors. Have you taken Prosper up on one of these many promotions? How do you feel about the featured listings? Please share your thoughts in the comments.

{ 13 comments… read them below or add one }

Dan B March 22, 2011 at 5:53 am

Although I’ve been a p2p investor at Lending Club for only 15-16 months, my first p2p experience goes back almost 4 years & was with Prosper. A friend of mine came to me asking for a loan after her car expired. Since I had no desire to lend her any money even if it was posed to me as a dare, I helped her fill out a loan application at Prosper. She was 20, working part time at a Dairy Queen & had a checkered payment past. This was a really week loan application, but weaker ones were funding so her’s did as well.

I’ve been a very small Prosper investor for almost 2 months now & I can see that there are still very large amounts of really marginal borrowers. I’ll even suggest that “it appears” that Prosper & LC are competing for the same borrowers but ONLY among the AA through C Prosper categories. Below that category, LC borrowers “seem” a lot more credit worthy. I’d be curious if anyone agrees with this initial assessment.

Of course only time will tell what type of return investors will get from these high 20-30% rates on offer &/or how many of those notes will end up going down the path to default………………which, not surprisingly, is the way my friends loan ended up.

Jason March 22, 2011 at 5:56 am

Interestingly, I found your blog through a track back from them. They never did post my question. It takes 5-6 days to fund your investing account, why did the promotion initially last only 2 days? It was suppose to end March 17th. I put money in on the 16th and will be available on the 23rd. The same day the promotion ends. If they were really trying to court investors, I would think they would open all the loans and let investors know well in advance. Just some thoughts.

Jason

Peter Renton March 22, 2011 at 11:22 am

@Dan, I think you will find the Prosper of today is a completely different animal to the Prosper that existed before 2009. Check out this chart from Fred93 (a long time Prosper investor). It hasn’t been updated in a while but you can see how quickly many of the old loans on Prosper went bad. It is a different story for loans issued since they reopened in July 2009 after their quiet period.

As to your other point you are going to get agreement from the people at Lending Club about that. They say that AA through C loans on Prosper roughly correspond to A through G loans on Lending Club. The interest rate comparison verifies this somewhat, a G5 grade loan on Lending Club has a 21.59% interest rate whereas a C grade loan for a new borrower on Prosper has a 19.49% rate (for a 3 year loan) and a 22.49% rate (for a 5 year loan).

@Jason, I think the focus for the 2% cash back on featured listings is on current investors who have cash sitting idle in their account. The 5-6 days waiting time for new investments means it will be very difficult for people like yourself to get loans funded in time. But who knows, they may extend it again….

Dan B March 22, 2011 at 2:06 pm

@Peter……..That’s a terrible chart. I know I’m stating the obvious, but Jesus.

@Jason………I thought there was an “instant” ACH transfer option on deposits? Or is that not offered universally?

Aaron March 22, 2011 at 4:41 pm

@Dan, Why is that a terrible chart? It seems decent to me. Granted, there isn’t much info for the area after the quiet period, but it is still useful. If you eliminate everything after the first 6 months on each and every transaction and then draw a trendline, it is quite clear that (at least for the first 6 months of every loan’s life) there was a dramatic improvement. I believe this is what Peter was getting at.

@Dan & Jason, Instant Loanable funds appear in your account if you transfer between $500 and $20,000. The funds are not deducted immediately from your home account, but Prosper encourages large deposits by instantly making your funds available in these cases. If Jason transfers in less than $500 then he will have to wait a week for the ACH process to complete. And yes, Prosper doesn’t want idle funds just sitting in their account (can’t make any money off of it.)

As to the main topic, most of these loans appear to be awful in my book. None of them meet my requirements. I think this is done to get “difficult to fund” loans funded. There is even a 5 year D grade loan on there labeled divorce loan. First of all, 5 year D grade! When did this happen? I thought 5 year loans were only for AA-B! Secondly, divorces are some of the leading causes of messy accounting leading to bankruptcy or court ordered debt splitting. This is a no brainer for me to run away.

After looking at this further, it looks to me like Propser is deliberately taking a loss on these loans to get them funded. It really surprises me because I don’t know how this could be a good business decision.

Dan B March 22, 2011 at 5:07 pm

@Aaron………..I don’t mean “terrible” as in useless or bad. I mean terrible as in the amount of defaults etc.

Aaron March 22, 2011 at 6:31 pm

@Dan, Sorry my mistake. And I agree!

Also, I’d like to add that I took advantage of one of Prosper’s 2% all day deals way back in October ’10. I invested a couple hundred bucks on 4 loans, not because there was a deal on, but because I was going to invest that day anyway. Only $100 of the money actually became a loan. I got my 2 bucks, but it wasn’t until Dec 31st, the last day of the year and a full 2.5 months later. They don’t notify you of the deposit either. I had to go back to look to see when I was paid. Lol. I’ve never seen the need to chase after these extras. I would rather invest in loans that have a better chance than throwing money at risky listings for a meesley 2% bonus.

Peter Renton March 22, 2011 at 8:46 pm

@Aaron, Thanks for the clarification on the instant transfers. I agree that the featured loans are simply not worth the bonus. Even if you put $100 into each of the 25 loans, which would be aggressive given some of them (such as the 5 year D grade loan you mention), you would receive the princely sum of $50 back – not enough to cover one default (which is highly likely). I think it is more prudent to stick to an investment plan regardless of bonuses. But these kinds of things must work in some way, otherwise I can’t imagine they would keep doing them.

Aaron March 23, 2011 at 12:38 pm

Agreed. I doubt that it will affect the more informed investors, but I am afraid that many of the smaller investors will suffer if they look for a little extra gain.

Just looked again today. All 25 of them are still there and don’t appear to be moving. Funny thing is, the “divorce loan” is now labeled “my personal loan.” Lol. Maybe that guy reads your blog Peter.

Peter Renton March 23, 2011 at 2:17 pm

@Aaron, or maybe he just realized that “divorce loan” was not a very appealing title to investors….common sense?

Moe April 3, 2011 at 1:58 am

I do not invest in Prosper because their statistics file is too large for my computer to handle and they did not provide any assistance with this.

Jer April 13, 2011 at 1:13 am

Probably not the place but I have had 4 previous loans on prosper and just listed my fifth if anyone is interested. I am a C 19.99% I am a subcontractor and usually dont get paid for 60 days so I want a payroll buffer. If anyone is interested I would be happy to answer any questions.

Peter Renton April 14, 2011 at 1:06 pm

@Moe, I know their file is really big and I haven’t even had much of a chance to play around with it myself. But I use third party tools like Lendstats.com and Ericscc.com to help me analyze the Prosper data.

@Jer, You are welcome to post your loan here, but without a link to it I don’t think you will get many takers on here.

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