Return on investment (ROI) is a measure of the actual percentage of return from a loan, with fees and similar costs subtracted. In the Prosper website's performace data, when you look at ROI of lower valued loans to higher valued loans, the trend is for lower valued loans to make a better ROI.
I'd often suspected that lower valued loans are safer to invest in because it was a smaller amount to actually pay back but I'd never put any numbers against the theory.
Well, turns out this is in fact the case.
For all loans, in all credit grades, loans under $5,000 perform better across all credit grades than loans over $5,000 by an overall average of %5. That's an increased ROI of 5%.
When we are a bit more selective, eliminating loans with more than 2 delinquencies and a maximum of 40% DTI, the overall average ROI increase is 4%, so a slight decrease to account for the folks with better credit histories more likely to pay back large amounts.
When we become even more stringent and verify home ownership, the ROI decreases slightly below 4%.
Very strict credit criteria such as 0 delinquencies, 0 public records, and verified home ownership sees the difference in the two drop to about 2.75%.
Simply put, bidding on lower value loans have a better return. While better credit increases security and thus drops the difference in ROI for each test, there is still a better ROI for loans under $5,000 than those over $5,000.