Prosper is back online. After a quiet period of over 6 months in which the SEC was reviewing the business the peer to peer lending company is back doing business.
While America becomes a nation of privatizing profits and socializing losses, Prosper account balances are FDIC insured.
The recent financial markets meltdowns are causing a global panic. If you are a Prosper lender, you can rest assured that your Prosper cash balances are FDIC insured.
Prosper itself is not a bank and does not take deposits but the funds that lenders keep with Prosper are held at Wells Fargo Bank which is FDIC insured.
I didn't believe it when I heard about it, but I saw it for myself. The loan finally funded on July 15th. The 3 pages of expired and withdrawn listings date all the way back to Febuary 2007, a total of 17 months of trying!
So, for all of you borrowers that think it will never happen, maybe you too will get a single lender to fund your entire loan like this one after 57 tries.
If you are a Prosper lender but also have a loan, here is something interesting I learned recently: you can make a payment on your loan directly from your Prosper account.
I wasn't aware this was possible. I have always had my payments automatically deducted from my account and never bothered to look at the "make a payment" link under My Account > Borrowing. But when I was researching the recent post I wrote on "Snowflaking" I discovered this was in fact possible so I thought I would pass it on to those that didn't know including me.
I've acutally withdrawn money from my Prosper account to my bank account in preperation for a payment, now I don't have to because you have 2 options for making a payment:
- Paying down your loan by a certain amount
- Making your next payment
I'm going to start using this!
Prosper has been in the news recently...
At MSNBC, Prosper is mentioned in regards to formalizing terms of a loan, something I've blogged about before
An eBay for lending at aLive
ECommerce Times talks about an easier path to cash, calling person to person lending the "teller window" on the Web
A study that tracks benefits of peer-to-peer online lending from the University of Deleware
US News and World Report asks: Is Peer-to-Peer Lending a Solution for Start-ups?
Can't get a mortgate? The Statesman discusses person to person lending as a new source for funds
Snowflaking is a way to save on interest. The general principle is to pay in a small extra amount towards a loan every month, a $5 snowflake here, a $10 snowflake there starts to build into a snowball which, if rolled downhill, compounds. These small amounts might not seem like much but they definitely add up.
This process is traditionally used for reducing credit card payments but it’s also viable for a Prosper loan since any snowflake you put in will reduce the overall interest you’ve spent for the entire term of the loan. You will also end up paying it off early.
You will see below that that snowflaking is more valuable the higher your interest rate goes
Let’s look at a very simple example of how this process can save you money. Let’s say you got the minimum amount possible for a Prosper loan, $1000 and let’s say it was at 9%. Lets snowflake at a 1% rate, meaning that you put in an extra $10 (which is 1% of the loan amount) a month towards the principle, and see what happens:
- Your 36 month loan term has been shortened to 27 month
- Your total interest paid has been reduced from $144 to $106, a savings of 38$ which adds up to a savings of 27% on interest
- That’s %3.8 of the $1000 principal
It may not seem like a huge amount, but if you pay a higher rate see below, it gets better.
Scaling it out
Now, a $1000 loan is not a lot of money, and $10 is not a lot extra to pay in, but if you scale the 1% rule up you save a lot more money. If you borrowed $10,000 and snowflaked at a 1% rate ($100 extra a month) you’d save almost $400 in interest payments!
Scale it up to the maximum loan amount for a Prosper loan of $25,000 and, at 9%, you’d save $1,000 in interest… nothing to sneeze at.
Scaling it up
I mentioned it gets better. We looked at how much you can save on a Prosper loan by looking across different loan amounts. What happens if we look vertically at different interest rates as they go up, how much more will you save?
Turns out a lot. Let’s start with that $1,000, and let’s say that interest rate is 25% instead of the 9% rate used above:
- Your 36 month loan term is still shortened to 27 months
- Your total interest paid has been reduced from $431 to $309, a savings of a whopping $122 which adds up to a 29% reduction on interest
- $122 on $1,000 is 12.2% of the principal!
Now that we are scaling these calculations up to higher interest rates, lets scale it out again for higher loan amounts:
At $10,000 and 25% interest, the 12.2% still applies, so you’ve saved $1,222 in interest payments. That’s a lot of money.
At the $25,000 maximum the savings are a whopping $3050!
The 1% rule
I like the 1% rule because it’s easy to calculate and easy to do. No matter how much you borrow and no matter how much your interest rate, a 36 month Prosper loan will always be reduced to 27 months by simply paying 1% of the loan amount on top of your regular payment.
Well, I've finally recieved some noteriarty from the Prosper.com website, my blog has been listed!
It's nice to be recognized for my effort in contributing useful information to the community.
If you want to check it out, go to their 3rd Party page.
Endorsements are a useful tool to help get potential lenders interested in your Prosper loan. There are a few ways to get the most out of this technique which can sometimes make the difference in whether your loan gets funded.
First, get your endorsements in line before you create your listing. Sometimes you want a relative or friend to endorse you, in which case they have to join Prosper. Get this done in advance of your loan's initiation so the endorsement is there from the beginning.
The objective here is to get people interested in your loan early because a loan with early bids will attract much more attention (thus dramatically increase the chances of funding) than one that starts getting funded late. Endorsements as a desperate attempt to generate bids often fails.
What to say
Endorsements should be kept simple and be relatively short. They should include how you know the person, how long, some mention of confidence in the ability to repay, and, if a bid supports the listing, a 'money where your mouth is' statement.
Endorse with money
While there is absolutely nothing wrong with someone joining Prosper just to create an endorsement, an endorsement from a known lender with a bid to support it is more valuable, much more valuable.
If you want to take an endorsement with a bid to the next level, make the bid at a 1% interest rate so you are in no matter what, and make sure to mention that in the endorsement so folks know you are committed to this person's loan.
You've got until June 30, 2008 (4 days from today) to register with Prosper and take advantage of the bonus for signing up as a lender.
Nobody knows what will happen to the referral program as of now, but if you want to be sure and get your $25 lender bonus, here is your chance. Act now, you can join Prosper here.