Daddy Financials

I am taking the plunge and have registered to become a lender with Prosper.Com. I did a lot of research before doing this and it seems to that the pros outweigh the cons. There are some nice review posts by Frykitty at Get Rich Slowly, Tricia of Blogging Away Debt fame, interviews Prosper's biggest investor (the man has invested over $750K, he's worth listening to if your thinking about jumping in), and Jonathan over at My Money Blog does a 2 part review of Prosper; Part 1, Part 2.

There are also several forums, discussion boards, and message boards on the Prosper.Com site itself where lenders describe their experiences, both good and bad. They also go into detail about what to look out for, how to choose your borrowers, so on and so forth. For me personally, the pros are:

1) The chance to be The Bank. This just holds a certain level of satisfaction for me, someone who used to be deep in debt, now being able to lend money to those who need it. I think this will also give me more of an inside look into what lenders are looking for in me and what my information tells them about me as a borrower when I am looking for a loan. I think this can be a very educational and rewarding experience.

2) The chance to help people. Even though I plan to scrutinize any possible borrowers to the greatest detail, I still remember when I was down and out and could not get a credit card or loan from anyone, let alone a bank. So I do plan to take the occasional risk, not at first, but at some point. Everyone needs a helping hand, and just because someone has a low credit score, does not make them a high credit risk. It is a good starting point, but I plan to look a little deeper if it is a worthwhile cause. Income, job security, the purpose of the loan, etc. these will factor in along with the credit score to help make my decisions.

3) Possible high returns. As much as I want to help people and learn from this, I am also trying to make some money. I don't plan to double my money in a few weeks like some crazed day-trader :) but I would like at least a 10% return on my investments. This would make me happy with the risk I am waking as opposed to keeping my money at ING and earning about 4.5%. Now if these online banks start to raise their rates above say 5.5%, I will have to raise my required ROI accordingly to make this worthwhile.

But of course there are cons:

1) NO guarantees. This can be pretty scary, even if you only invest a small amount. Say you fund a portion of a loan with $50. Seems small, but if the loans defaults, you lose it... all of it. With stocks, if they go down 10% or even 50%, you can still sell and cut your losses. Online savings account are insured by the FDIC up to $100K. If a loan defaults, your only recourse is a collection agency. This doesn't always work because the borrower lost his job and just does not have the money to pay anything. Fifty bucks is still fifty bucks, I work hard for my money and this will be tough to "chalk it up to the game".

Again I think the educational value and possible returns are worth the risk, for me. You can invest at your own risk if you decide you want to jump on the Prosper train.

I will start with $50, then invest another $150 in a separate loan. I was going to go the route of 5 small $50 loans, but after reading all of the info I think it is best to do two good loans as opposed to 5 OK loans. Again, these are just my thoughts and everyone has their own investment style. I don't knock anybodies hustle, if your making money, keep makin' that money, play on playa.

From what I have seen so far, they have streamlined the sign-up process from what it used to be. You can get approved instantly if you provide the username and password to your linked saving/checking account. This is supposed to be a secure connection and site, and the info is erased once it is verified, but I've seen too many movies with guys hacking into sites and old hard drives being used to gather information for me to go this route. So I will do the good ole' deposit, withdrawal confirmation. This is when they deposit a small amount in your account, then withdraw a small amount and you verify these on their site. This can take up to 2 business days, but it seems safer to me. Once your account is verified, you can start transferring money and then fund the loans of you choice.

I will do a future post once I fund my first loan, and I will share any other useful info I can gather. Wish me luck.

Thanks for reading.

I Love you Baby