
Social Lending -- Just How Many Loans Can Go Late Before We Worry? - transburgh
http://www.centernetworks.com/social-lending-bad-debt
======
rms
About a year ago, I loaned $1000 worth of money to the highest risk people on
prosper.com, at an average interest rate of 24%. I reinvested returns for
about 6 months until I started getting defaults.

So far I've made $186.91 in interest and lost $344 in defaults. If I have no
more defaults I'll have broken even after three years.

------
JayNeely
I commented to Allen, the post author, that I think it's very important that
he include Andy's stated loan-making strategy before he starts casting doubt
on Prosper's, or peer to peer lending in general's, effectiveness:

"We focus our lending efforts on people who [...] Have a lower credit score
(and are thus willing to pay higher interest rates)"*

While Andy does try to mitigate that risk, he's still purposely lending to the
highest-risk group available.

Using Prosper's own (very useful) dynamic statistics page, we can see that of
all loans made since March 28th(when Andy made his first loan)^, 8.17% are
late. BUT, only 4.53% are over 1 month late. Furthermore, out of the total
number of late loans, ~60% are loans made to D, F, and HR credit ratings, the
low credit score group Andy loaned to.

When you loan to a high risk group, you have to be willing to accept the
potential negative consequences of that risk. Andy decided to limit that risk,
but I think he staked too much importance on loaning to people with no
delinquencies on their credit report, forgetting that past performance is not
always a good indicator of future actions.

By Andy's own admission, he's gained 10% on the 5k he loaned. Hardly cause to
start waving the bad debt flag, especially if the 2/3rds of his bad debt that
are 1 month late or less come back to current, with late fees.

I've been keeping my own coverage of social lending services updated. I hope
you'll find it useful: [http://socialstrategist.com/2007/06/08/small-loans-
big-bucks...](http://socialstrategist.com/2007/06/08/small-loans-big-bucks-
the-world-of-social-lending)

*<http://andyswan.com/2007/06/25/prosper-is-really-cool/> \- Andy's first post

^[http://www.prosper.com/lend/performance.aspx?af=0&esba=6...](http://www.prosper.com/lend/performance.aspx?af=0&esba=63&gc=&gm=0&gr=0%2c1%2c2%2c3%2c4%2c5&hw=0&iba=255&ibid=0&iwatch=0&lc=0%2c1%2c2%2c3%2c4%2c5%2c6%2c7&lq=&maxAmt=25000&maxDTI=1000000&maxFund=1&maxGrpTLC=1000000&minA=0&minAA=0&minAmt=0&minB=0&minC=0&minD=0&minDTI=0&minE=0&minFund=0&minGrpTLC=0&minHR=0&minNC=0&occ=&od=01%2f27%2f2008&oer=01%2f27%2f2008&osr=03%2f28%2f2007&plcgd=&plp=0&sf=10&sh=0&sn=&tg=0&vb=0)
\- Statistics from Prosper

