Default Rates broken down by Credit Grade and DTI Buckets

This post is in response to a post I saw in the Prosper Lender forums requesting for stats on defaults vs. DTI. To obtain this data, I have queried all the loans that have been paid in full, defaulted, or repurchased from 2/1/2006 – 7/19/2007. The query ended on 7/19 because I wanted to give sufficient time for loans to default. Buckets have been broken down based on credit grade and the DTI range. The chart was cut off at 59.99% DTI because there was insufficient amount of data points but the raw data is in the tables below if you are interested in taking a look at them. Please bear in mind that these numbers do not include loans that are still in the repayment phase. That is why the numbers seem exaggerated. You can hover over each point to see the percent default rate.
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How do I choose a Prosper loan to fund?

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. Read more »

Taking into account the Prosper fees and net default rates, which credit grade will have the highest return of investment (ROI)?

In order to assist you with making this decision, I have generated 2 tables using default rates originating from Experian and Prosper.com.

Update: Please note that all Prosper loans are 3-year terms and Prosper has only been around since February of 2006. This means that there is not enough data to in giving accurate default rates based on the historical performance of Prosper loans. Prosper is still young and needs to mature in order to obtain accurate statistics. Right now, we can only extrapolate and predict with the limited amount of data that we have.
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What interest rate should I use when bidding on a loan?

Here is a simple calculator to assist you in figuring out what interest you should be using when you bid on a listing. It takes into account the borrower credit grade and your desired interest rate. This tool calculates the adjusted interest rate which accounts for the Prosper loan servicing fee and the average default rate for borrowers with the same credit grade. Please note that actual results may vary.

Update: Prosper now has a risk calculator that will estimate your earnings based on the historical performance of similar listings in the past when making your bid. I highly recommend utilizing this tool when bidding as it is more accurate. Read more »

How much money should I bid on Prosper loans?

Like with all types of investments, diversification of your Prosper loan portfolio is key in reducing risk. It is best to spread your money amongst many loans instead of having all your eggs in one basket. The minimum bid on a Prosper loan is $50 and that is what I would recommend to all lenders.

If you have a large sum of money to invest, then maybe I would go with $100 per bid as it is all relative after all. The key is to diversify your portfolio.

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