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Prosper Quietly Adds Three New Search Filters

by Peter Renton on April 4, 2012

Last week Prosper added some new advanced search criteria that could help investors refine their note selections. There are three new selections in the Advanced Search section under Advanced Criteria->Listing Basics: State, Lender Yield and Minimum Expected Return. Let’s take a look at each one.

State of Residence

For this one I say it is about time. Lending Club has had the ability to filter loans via state for years. Prosper now brings this selection to their investors.

When I was doing some research on Lendstats recently and I was looking at the state breakdown for all loans. On Lending Club states like Florida and California provide below average returns so I have been filtering out those states when choosing loans. But on Prosper, California is outperforming the average handily, although Florida still underperforms when looking at all Prosper 2.0 loans.

One word of warning before implementing this filter. Apply a state filter after you have chosen your other criteria. I found that the performance of previous borrowers differs dramatically by state than for first time borrowers. So it is important to look at the state breakdown as the last step in your filtering process on Lendstats.

Lender Yield

When I look at my Prosper account I have C-grade notes that range in interest rates from 16.99% (for a 3-year loan to a repeat borrower) up to 26.05% (for a 5-year loan to a new borrower). These loans are over 9% apart but are both graded as a C. Other loan grades have similar large ranges.

There are three reasons for this big variance:

  1. Repeat borrowers get much lower rates than new borrowers.
  2. Three-year loans have lower rates than five-year loans.
  3. Prosper adjusts their interest rates regularly.

Until now, if you wanted to invest in just loans that yielded between, say, 18% and 25% you had to do multiple searches with different credit grades to get all these loans. Now, you can ignore credit grade completely and just use lender yield.

Minimum Expected Return

This is the most interesting change of the three. As you can see in the graphic here, whenever you invest in a loan Prosper gives you their estimate of the annual loss you will receive if you invest in a basket of similar loans. Subtract that from your effective yield and you have expected lender return.

Prosper has often promoted the fact that they have been beating their own estimates as to the expected performance of their loans. If you believe this will continue and you want a 12% return or more then you should just invest in every loan that Prosper expects a return of greater than 12%.

One word of warning about expected lender return. Five-year loans have a much lower expected default rate than three-year loans, which mean a higher expected lender return. But five-year loans have a short history being just introduced in 2010 so we really don’t have enough data yet to know if these higher returns stand the test of time. So, I would caution you before investing in all loans with the highest expected return because these will all be five-year loans.

These are Positive Changes for P2P Investors

All three of these changes I think will help investors select the loans that are right for them. I am going to be incorporating some new saved searches into my Automated Quick Invest on Prosper.

What do other Prosper investors think? Will you stick with your existing selection criteria or take a closer look at these three new filters?

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{ 7 comments… read them below or add one }

Chris April 4, 2012 at 8:38 pm

Good stuff Peter – thanks for sharing.


Dan B April 5, 2012 at 9:00 pm

Sure, I think it’s pretty clear that these new options will make note selection more efficient. Just as important as the additions, is that we are continuing to see this trend of positive &/or investor friendly moves by Prosper recently. As critical as I’ve been of them in the past, it’s only fair that I give them a big thumbs up for the efforts they’ve made here & in the past couple of months.


CultOfMoney April 5, 2012 at 10:29 pm

I actually noticed that something was different when I was playing with the search criteria earlier today, but didn’t actually notice the difference until you pointed it out. Lol. Good to know I’m keeping a good eye on my investments. Thanks for the heads up. I think this will be helpful, though not being a LC member, I don’t have experience with the state stats.


Bilgefisher April 6, 2012 at 8:24 am

This is great news. I was unable to invest in D loans with the autoinvest feature since many loans would be below my minimum required lender yield. Now I will have a large number of loans to choose from.



Peter Renton April 7, 2012 at 3:08 am

@Chris, You’re welcome.

@Dan, Thanks for your positive comments – I think they really are trying to do the right thing by the retail investors. Be interesting to see if this trend continues under the new CEO. Let’s hope.

@CultofMoney, It was easy to miss. I had to go back and look at some old screen shots I had to be certain of the changes.

@Bilgefisher, If you include 5-year loans you will likely have a really large number to choose from. Prosper has really increased the number of those loans on the platform lately.


Thomas DeLong April 7, 2012 at 9:25 am

Great post! Prosper is changing their risk pricing fairly often and it will be useful to have the min expected return as they tweak their platform. Since it’s only really for the aggregate of all those types of loans on the platform, if someone is trying to diversify their portfolio across a large number of loans the min expected return will be very useful. Thanks Peter!


Peter Renton April 8, 2012 at 7:39 pm

@Thomas, That is a key point. Some people mistakenly think that is the return they can expect from an individual loan. But this is really about the returns expectation when you hold a large basket of such loans.


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