Orkney Money Management

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Lesson Learned from Lending Through Prosper.com’s Online Loan Service

Money, we all want it. We all want more of it. It’s almost as if we were somehow designed to compete with each other in order to have the most money. Anyone who has any sort of money knows that in order to be wealthy, money has to work for you, rather than the other way around. People will try all sorts of new investing methods in order to become very wealthy. The internet has brought out a peculiar form of investing for people who have a bit of money to invest. A company called Prosper.com is allowing people to lend each other money, and many investors are now making decent returns of up to 10% adjusted for risk, as opposed to money market accounts and certificate of deposits which make about half of that. If you are considering becoming a lender on Prosper, know these very important tips from a Prosper Pro.
It’s better to have a lot of active loans than a few large ones. This will diversify your risk, so that if one person is late on their payments, you are not up a creek. I have had a total of three loans become late; two of them have been remedied and made current, while the other has been late for less than two weeks, so we’ll see what happens with that one.

You will experience early payoffs and this is to be expected. When this happens you will have to re-loan out that money to another worthwhile borrower.

It will take some time for you to loan out all of your money. I had a few hundred dollars I thought I would play with in Prosper when I first started and expected to loan it all out in about a week. It actually took closer to a month to find quality and worthwhile borrowers. You won’t loan it out as fast as you hope to, but don’t be quick to loan out money just to have it loaned out. If you have it loaned out to the wrong people, you’ll never see it again.

There’s an old negotiation saying that the person with the most information wins. Loans that give you a lot of information are usually better than vague ones. You can use Prosper’s search function to find loans with the criteria that you desire. You can offer loans to these people, but since so many other people are often times you don’t get to give the loan and the money is stuck on a standing order not giving you any interest.

Prosper is nice enough to tell you your risk adjusted rate of return, however they do not factor in the money that you have sitting in your account which is not invested. It’s just sitting there not doing you any good. You might not have found someone to loan that money out to yet, and it’s essentially earning you 0%! What good is that?! Not very much. This needs to be factored in when calculating your overall rate of return for the site. Don’t fool your self into thinking you are making more money than you actually are.