How to choose a Prosper listing to bid on

How do I choose a Prosper loan to fund?

Published by knix on October 19, 2007 09:29 pm under prosper

Prosper.com is a people-to-people marketplace where borrowers can find loaners and vice versa. I have spent my share of countless hours on Prosper.com sifting through pages and pages of listings. Since joining in April 2007, I have added 100+ loans with an average interest rate of 20.19% to my portfolio and it has become a bit of an addiction =) I have also been spreading the word to my peers about this great opportunity and many of them have asked me how I choose my loans. One person has even told me that I should put this in a blog so that is how this started. Ok, enough of the gibberish. Let’s get to the criteria that I deem necessary in finding the right loan to fund.

Endorsements from Friends – These are recommendations made by other members of the Prosper community that give credibility to the borrower. There are several different types of endorsements and they can be identified by these icons:

If the identity of the endorser has not been identified yet by Prosper.com, then the first icon will appear in the listing. If the borrower is part of a group and receives an endorsement from the group leader, the second icon will be displayed. If an endorser actually bids on the listing, you will see the third icon with the dollar amount of the bid. The best types of endorsements consist of the following:
1. Friends or Prosper members who have actually placed a bid on the listing. This not only gives credibility to the endorsement but it also shows the confidence that they have in the borrower.
2. A personal photo of the endorser is always a plus.
Endorsements will also drive the borrowers to pay on time because if they are late on their payments, the endorsers them will receive an email notice of that.
Clean history – This probably does not need to be reiterated but borrowers who have 0 delinquencies tend to stay that way. These people understand the importance of having a good credit score and have clearly shown their ability to maintain a clean record. I have started to accumulate some data regarding the loans that are late and the one common theme is that most of them have been delinquent in the past.
It’s all in the Description – OK, that might be an exaggeration but it can definitely give an indication. On looking back at the 2 loans I have that are 4+ months default, I noticed one obvious thing they had in common:

The borrowers did not bother to write the purpose of their loans or their financial situations. I’m not sure if they were just lazy or had something to hide, but this should definitely draw up a red flag. This situation is analogous to receiving someone’s resume and noticing that the skills or experience section is blank or missing. Looking back now, I can not believe at the dumb mistakes I have made when I started out. This is also the type of thing that you cannot filter for in a standing order or a portfolio plan and this is exactly why I choose all my loans by eye.
Going, going, gone – Bidding on Prosper is very similar to bidding on eBay: most of the activity happens in the last couple of hours. I recommend bidding during the last couple of hours of a listing instead of a listing that is still opened for 7 days. The reason being that your money will be tied up for 7 days doing absolutely nothing. You mind as well have placed a bid on a listing that was ending soon so that you can start earning interest as soon as possible. Time is money and in the long run, this will have a huge impact.
Loan amount < $10,000 All Prosper loans have a 3-year term. This short duration equates to higher monthly payments that could overburden borrowers who are used to long-term loans.
Percent funding – Do not waste your time and money on listings that are not funded. I usually look for at least 90% funding before I start to bid because these listings have the best chance of becoming a loan. Here is a tip for the busy or the lazy: make other bidders do all the work and look for and bid on listings that have 100% funding. This can save some time and also serves to weed out risky loans.
Personal photos – Listings with actual photos of the borrower tend to be more personal. Not only are they willing to put their face out there, but this shows some sort of commitment. With their faces out there on the net, these people tend not to default as often as those utilizing the default icons.
HR credit grade = bad – Do not risk your money with HR listings. The return is extremely low and risky. In fact, HR listings have the worst returns.
Credit Inquiries in the last 6 months – I would stay between 0-3 inquiries within the last 6 months. If the number is greater, you are putting your money at risk.