My Prosper Portfolio Performance (CY 2007) - Ugh!

Well, my first year of Prosper lending has come to a close (actually, I began lending in on March 27, 2007, but year end is a good time to reflect). After many countless hours spent building up P2P-Loans.com and investing over $16,000 in Prosper, here are my net results for 2007:

Interest income received: $699.25
Late fee payments received: $0.39
Service fees paid: ($38.67)
Referral rewards collected: $100.00
Group Leader rewards rec’d: $307.57

Gross Income (2007): $1,107.21

Less: Loans >1 month late: ($686.88)

Net Income (2007): $420.33

Assuming an average portfolio of $13,000 (this is approximate, but close), this is a paltry 3.2% return over slightly more than 9 months. Adjusting for a 12-month period, this amounts to slightly more than a 4.0% return on investment. If I exclude the $407.57 in referral and Group Leader rewards I just about break even on the year (i.e. if I only look at the performance of the loans I invested in).

But, my experience was actually reasonably positive if you spread the numbers and look a little deeper into my loan portfolio. The primary driver of the losses I expect to take are in two loans (with a small loss from a 3rd $50 loan). It is noteworthy that I only expect to take the losses noted above as the loans mentioned are 3 months past due, hence I expect them to default. To put this into perspective, I made over 120 loans in 2007 and all of my expected losses are coming from just 3 loans (I invested $600 in two of the loans that I expect to default). Thus, if I had made a $50 investment in each and every loan I closed, I would be out a mere $150, which would put my total return up in the high single digits (which is actually pretty attractive, in my opinion, and in line with what Prosper is marketing to new lenders). I do expect that there are some loans in my portfolio that will turn bad down the road, thus I reserve the right to edit this commentary in the future.

So, given all of this data and commentary, what have I learned this year as a Prosper lender and group leader? 1) Remain disciplined and invest a consistent amount in each loan that is attractive to you (don’t double, triple or quadruple down if you really like a particular listing), 2) Don’t waste endless hours trying to be a group leader unless Prosper agrees to reinstate compensation (I earned about $1 per hour this year as a group leader) unless you are doing it out of the goodness of your heart and unless you are willing to accept that Prosper likes to change the rules without any notice from time to time; and 3) BE CAREFUL as we are facing some serious economic headwinds in 2008 – I expect defaults to rise on Prosper as they are rising in other areas of the financial services sector (link to article on rising credit card defaults).

If you simply don’t want to go through the hassle of reading listings and want to earn a certain (albeit lower) interest rate on your month, visit our Best High Interest Checking/Savings accounts page to see what is available (you can earn 5%+ in an FDIC insured account, for example).

Good luck and I wish you the best for a Prosperous New Year! And, thank you for supporting P2P-Loans.