Payments Are Being Reinvested

 When I venture into my back office at Prosper.com I can take a closer look at my activity by clicking on "View Detail".  This is what it looks like:

Available to bid: $0.00

View Detail 

We can see that I have zero dollars available to bid as I have bid using my entire deposit of $550.00 and the 67 cents interest that I've already been paid.  When I click on View Detail I see this: 

Cash Summary

Total deposits:		$550.00
Total withdrawals:	-	$0.00
Cash used to purchase notes:	-	$507.16
Payments received:	+	$28.27
Cash balance:	=	$71.11
Prosper winning bids:		$71.11
Available to bid:		$0.00

 

The first section above shows that I have used $507.16 to purchase notes.  I have received $28.27 back from borrowers, which includes one borrower who paid off his note right away.  I believe I received $26.06 within a couple weeks of having my $26.00 bid accepted.  The other $2.25 includes both principal and interest.  Also, I have $71.11 bid on 2 remaining loans that are currently pending review.  My experience so far is that about 15% of the "pending review" loans result in an email like this:

Dear Charles,

You were a winning bidder on:

Listing number: XXXXXX
Listing created: Sample Date 8:14 AM

However, this listing was cancelled during a pre-funding review for one or more of the following reasons:

• The borrower's identity could not be verified.
• The borrower did not comply with Prosper Marketplace policies.

The funds in the amount of your bid have been returned to your Prosper account and made available for further bidding.

Regards,
Prosper

I am sure that some people will judge this result in a negative light as perhaps a waste of time or time that their money is not earning the interest rate they would like.  

However, I like the fact that Prosper is so careful all the way through the process.  Even after all the bidding is over, they are looking out for the interest of the lenders by making sure the borrower meets their standards. Frankly, I am surprised that borrowers try and do this without having all their ducks in a row.  

While Prosper doesn't prevent borrowers from using the money for a different purpose than the one they represent as the truth, it's clear that they have more than one level of safeguards to help the lenders.  I like their rating system, too, which includes their estimate of the possibility of loss for similar loans.  

Performance Summary

Payments received:		$28.27
Principal paid off:	-	$27.61
Payments in excess of principal:	=	$0.67
Principal charge-offs:	-	$0.00
Gain/loss to date:	=	$0.67

 

You can see in the section above that I have no charge-offs at this point.  I hope it never happens, but hopefully you can see that even with one or two charge-offs, a lender can achieve a favorable return on their money.  

Note Status Summary

Principal value of active notes:	$479.55
Total active notes:	19  View
Current:	19  View
Past due (1-30 days):	0  View
Past due (31+ days):	0  View
Payoff in progress:	0  View
Total charged-off notes:	0  View
Total notes paid in full:	1  View
Total notes sold:	0  View

In section 3 above it shows 19 active notes so I could have 21 active notes soon if both notes pending review receive final approval.  I think 21 borrowers is a great way to NOT have all your eggs in one basket.  

Note Acquisition Summary

Value of notes at acquisition:	$507.16
Acquisition cost:	$507.16
Premium at acquisition:	$0.00
Principal paid off:	$27.61
Average note yield at acquisition:	24.11%

In section 4 above you will see what I consider a truly excellent rate of return - 24.11%.  This will not be my total rate of return as I have two loans pending at 23.29% along with two loans at Kiva.org on which I receive 0% interest.Accounting for all the interest rates on the different loans, my calculations produce a total return of 22.46% IF no borrower defaults.  I recognize that this is a pretty BIG if. In my opinion, this is still pretty incredible and worth the risk.  Holding the rate of return constant at 22.46%, ten years of that return would produce this:

End of year one balance =  734.76

End of year two               =  899.79

EOY three                       = 1101.88

EOY four                         = 1349.36

EOY five                         = 1652.43  

EOY six                          = 2023.57

EOY seven                     = 2478.06

EOY eight                      = 3034.63 

EOY nine                       = 3716.21 

EOY ten                        = 4550.87 

I find this pretty impressive.  

Just a reminder though-  we are dealing with human beings.  How fortunate we would be if every single borrower paid back everything on time and in full.  That's not how it works in the real world, but we can see how my actual results stack up over the coming years.

Here's a quote from Kurt Vonnegut at BrainyQuote.com:

 Still and all, why bother? Here's my answer. Many people need desperately to receive this message: I feel and think much as you do, care about many of the things you care about, although most people do not care about them. You are not alone.
Kurt Vonnegut

"Achieve A Good Return Even If One Borrower Defaults"

While watching some Grey's Anatomy with my wife I decided to make some preliminary calculations.  This includes 18 loans at Prosper.com and 2 at Kiva.org.  Let's remember that the two loans at Kiva have a zero percent return.  The 18 at Prosper are most of the $550 I currently have invested at Prosper and I am waiting on three more loans to close there.  So, my predictions are a little rough as they exclude the final three loans.  But, we can get a preliminary basic picture of what's going on and what to expect.

If I assume that on average 1 out of 20 or so loans will not be repaid, I have found that with my selections I will still receive a respectable interest rate.  In fact, many people who invest in the stock market would love to get this return every year.  I want to be clear that I have not yet received even one dollar back yet as I write this because it is so early in the process.  I am trusting the human beings who say they will pay back the loans and I am trusting the track records of both Kiva.org and Prosper.com.

Here are the interest rates I will receive from the 18 loans at Prosper:
34%, 15.16%, 18.5%, 17%, 26.7%, 19%, 29%, 26.47%, 33%, 23.95%, 33.27%, 19.1%, 26%, 27%, 16%, 19.95%, 28%, and 22%.  The loans are mostly at $25, but they range from $5.10 to $64.88.

The interest rate on the 2 loans at Kiva.org is 0%.  Both loans are for $25. 

My total invested in all 20 loans is $507.16 and I expect to receive $616.51 and now that I have found how easy it is to use Google as a calculator, I know that this return - which is MORE than I expect - would be 21.56%.  If one of the randomly chosen (among the higher risk) loans defaults without even one payment being made, then I will receive $31.62 less.  That would mean that I would get back $584.89 instead and that would mean a return of 15.3%.

To recap, so far I have loaned 2 women at Kiva $25 each at an interest rate of ZERO percent and 18 people at Prosper a total of $507.16 and even if one of the Prosper borrowers doesn't pay back any money at all, I can expect an interest rate around 15%.

Who says you can't make a profit doing some good?