Don't Have a Prosper Lending Account? Haven't Funded Your Account Yet? Don't Bother!

You can read my latest posting on prosper lending here... You can always come back to the below posting.

The title is a little bit misleading. It's actually my opinion that you should DELAY funding your account. Here's the reason why:

(1) Lenders and their deep pockets appear to be growing at a faster pace than borrowers willing to submit good applications. I define good as prosper borrowers appropriately setting the interest rate they're willing to pay in line with their credit grade. I'm finding TOO many cases of people with the worst two possible credit grades asking for loans at rates around 10%. Get real! Prosper.com's primary mission is not to provide a forum for charity. (Enough of my rant)

(2) This imbalance between lenders and borrowers is causing some of the good loans to get bid down to lender risk adjusted rates equivalent to a Certificate of Deposit.
- Prime example: Within the last 48hrs I watched a "D" credit graded teacher get a roughly 12.9% interest rate on her loan. Working backwards (by trial and error), prosper.com's auto fill calculator shows me that lender's bidding on this loan got a risk adjusted return of only 6.7%. On top of this, they're assessed Prosper's 0.5% annual fee to yield an APY of roughly 6.2%. These lenders are much better off buying preferred stock or going to bankdeals and finding a bank running a certificate of deposit promotion.

(3) Ok, here's the take away... If you haven't funded your account yet, consider taking a break for about two weeks and checking back. Perhaps the supply of borrowers (with good applications) will fall in line with the current demand of lenders.

(4) Alternatively, if you're patient, go ahead and fund your account. However, if you're picky like me, you may not be able to find more than one or two decent loans a week.

I'm thinking that the groups that "vett" the loan applications are not doing a sufficient job training their loan applicants in writing a loan request. If I ran a group, i'd seriously consider trying to set a minimum interest rate based on each loan applicants credit grade. While, there probably isn't an efficient mechanism for enforcing this, i'd certainly try to steer them in the right direction. Absent of opening my own group, I whole heartedly recommend the group "due diligence." It's group leader has consistently turned out quality applicants. Let's see if he keeps it up.

Additionally, I HOPE that over time, people are going to hear about the great rates that borrowers are getting on loans and that the growth rate in borrowers may eclipse that of lenders and correct this temporary supply-demand imbalance.

Finally, prosper borrowers should consider listing their loans at their state's max interest rate. Not very many people are doing this. If done, they'll get an instant rush of bids through prosper's automated fill system. On top of that, they'll get massive click traffic for their application. Their application will pass most of the lender's initial screens. In no time, they'll have a 100% bidded loan. Then, they can sit back and watch the lenders bid the rate of the loan down like starving piranas

Good Luck All (Borrowers/Lenders)!