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Bottom line: Prosper over states my loan portfolio performance by about 3%. Instead of earning a 20.28% return, I've earned an annualized yield 17.1%.
My Prosper.com loan portfolio (Portfolio display provided by Eric's Credit Community).
a) Number of loans: 85
b) Total Loaned: $4,320.23*
c) Number delinquent: 2
- Loan 314XX: 2 months late
- Loan 311XX: 7 days late
*Notes:
1) Prosper states my effective interest rate is 20.28%
2) Prosper doesn't factor in the impact of group rewards and other fees. Instead, THE SITE MISREPRESENTS effective yields. YOU HAVE TO CALCULATE THIS ON YOUR OWN.
3) Meanwhile, if the delinquent accounts in paragraph "c" actually default, my effective interest rate would be reduced to 16.7% and 16.3% respectively (approximately 0.4% reduction for each default).
4) In calculating my effective interest rate, I assumed all interest income would have been reinvested at an effective 17.1% interest rate. I also ignored the 0% periods where interest income sits w/o being in an active loan.
5) When using "Eric's Credit Community," one will almost always get slight irregularities in the reporting of "Eric's Credit Community" and Prosper.com.
4 comments:
In order to compare with what you could get from a high-yield savings account, you should calculate your internal rate of return, which is he daily interest, then compound it over a year to figure your APY. This will account for those periods where the money is sitting idle, and is a more accurate comparison. 17% might look good, but if your money is sitting idle much of the time, the APY will be much lower.
That is indeed true, but it's nearly impossible to calculate the amount of time that the money is sitting idle. Because money does sit interest-free when it's not loaned at Prosper, I try to rarely have any significant money in there. I'll shift $100 or $200 a couple of times a week and loan it out as soon as I can. When you have 20-30 $50 loans as I do, it's really too complicated. I just estimate that at any given time, I have about $150-$200 not earning interest a year. That's not that much if you are able to keep enough money in the game.
As for using Eric's Effective Interest Rate, doesn't it factor in risk into the equation? I don't think Prosper's does. I'm okay with that, I wouldn't want Prosper to opine on how much I might make after risk. I prefer them to tell me the hard numbers, I'll factor in the risk myself.
I have made several comments that are actual misinterpretations of group rewards.
I've been in recent contact w/ prosper.com and they have assured me that group rewards are paid by borrowers.
You really know a lot about loans. Thanks for offering us with these items of details. It could really help individuals like me who want to begin a new company...
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