Analysis of Prosper’s Top 50 Lenders

I have spent several hours in the past week looking at the top investors on Prosper. One of the truly great things about Prosper from an investor perspective is that you can see the returns of your fellow investors. Now, most likely you won’t know who is behind these investments but you can learn plenty of details about how they invest.

This is all thanks to third party sites like Lendstats and Ericscc that take advantage of the way Prosper records the information on their database. For my analysis I looked at the top 50 lenders on Prosper who have invested in at least 200 loans and who have an average loan age of at least 9 months. I am also only looking at loans on Prosper 2.0 (those loans that originated after the SEC imposed quiet period that ended in July 2009). Here a link to this query on Lendstats. Ericscc also has a tool to analyze top Prosper lenders but I used the Lendstats tool for my analysis here.

High Yielding Returns Here

The ROI for the top 50 lenders according to Lendstats range from 22.4% down to 13.7% on the low end. Every investor here is earning above average returns and some are doing extremely well. One useful feature in Lendstats is it shows the criteria (on average) these investors are using when selecting which loans to invest in. This is what I have found most interesting.

Here are the typical criteria for the average top investor on Prosper:

Average ROI16.98
Loan Age10.9
Average number of loans497
Average loan size$6,283
Open credit lines8.8
% Credit Utilization59.4
Delinquency past 7 yrs29.1%
Current delinquency17.8%
Public record past 10 yrs22.2%
Annual borrower income$61,911
Number of inquiries1.6
Debt-to-income 29.0%
Revolving debt$17,311
Average credit history14.9 years

So what can we learn from these numbers? Well for starters, delinquencies appear to be less important than I first thought. I have been selecting loans based on a zero tolerance for delinquencies but by doing so, I could well be missing out on some good borrowers. Without exception, every one of these top 50 lenders allowed some borrowers with delinquencies (both current and 7 year) within their portfolio. Other factors I also found interesting were the high public records percentage, the relatively high borrower income and high number for credit history length.

If you don’t understand some of the terms in the above table you should do some research on interpreting credit reports. Here is a good place to start.

The Focus is on High Risk Loans

It is stating the obvious, but these investors are focused on the high risk loans, Prosper Ratings of C and below. These are the loans that offer the highest returns, but also the highest risks of defaults and every investor here has experienced several defaults. While these defaults have certainly impacted their ROI, because they have kept defaults to a minimum, (7% on the high end down to 1.3%), their returns have remained high despite these defaults.

Now, these loans, at an average age of 10.9 months, are still young. But they are old enough that the unscrupulous borrowers who deliberately default on a loan have been weeded out for the most part. While the ROI of these investors will likely continue to decline on these loans, I think it is fair to say as a group these investor returns will stay well above the average.

After looking at all these loans I would like to point out one lender who I am keeping an eye on. This is sweety075 (hat tip to Ken at Lendstats). She (I am assuming this lender is a she) doesn’t have the best return but she does have the best default rate among the top 50 investors. With 306 loans invested in Prosper 2.0 loans, she has a default rate of 1.3% with just four defaults. She is investing in loans with an average interest rate of 23.1% but with just four defaults she is enjoying an ROI of 20.61%.

I am tweaking my investment criteria going forward based on my research here. So, what do other investors think? Happy to hear reactions, positive or negative.

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Dan B
Dan B
May. 3, 2011 12:14 pm

I don’t know………..I’m looking at my Prosper acct. & Ericscc says my return is 20.4%, while lendstats says 6.2%, so I’m going to go with Ericscc since it sounds better to me. 🙂

May. 3, 2011 3:58 pm

Well, since you restricted the search to post-relaunch loans, I doubt that this tells much about the expected performance.
This includes too many loans that are too young to be able to default.
Try the same search with setting ‘use all loans’
and you get a very different picture:

Dan B
Dan B
May. 3, 2011 6:40 pm

I’ve only been on Prosper for about 20 minutes so I really don’t know…………..Is there a consensus that the first 1 1/2 yrs of Prosper 2.0 has produced substantially better results than the first 1 1/2 yrs of Prosper 1.0??

Dan B
Dan B
May. 4, 2011 1:01 am

Ok, I see that it is a massive improvement. But still a combined 10% defaulted & late loans total for notes whose average age is likely 5 months+/- is hardly ideal.

Then again, given the high interest rates involved……… might just be palatable. I don’t know, I’m going to have to think about this more. Any thoughts ?

Dan B
Dan B
May. 5, 2011 4:27 am

I’m really confused. When I go to Lendtstats I see that since 7/09 there were 10260 loans issued at Prosper. But when I add up all the loans from AA to HR I come up with a total of 3852. Add loans that were paid off early & loans issued but not yet performing & we’re up to 6110. Add defaults of 330 & all the “lates” & were only at 6790. Where are the remaining 3400+ loans hiding??

Dan B
Dan B
May. 5, 2011 11:33 am

@Peter………..I just used the numbers that are supplied on the performance summary page for a total number of loans after 7/09……..which is listed as 10260. Then clicking on AA thru HR individually & adding them as I described above.

Dan B
Dan B
May. 5, 2011 4:18 pm

Thanks Peter, that must be it.

May. 5, 2011 8:46 pm

Hi Peter hi Dan,

Yeah, you have explained everything pretty well. Yeah, on the home page those are filters. I have made a separate filter for each Prosper Rating and I named them as such. I really should do something to clear that confusion.

Wiseclerk, I believe you can make quality estimates of ROI based on young loans. In order to do that though you, need to estimate losses on all delinquent loans, and LendStats does that. Losses are estimated on all loans from 1 to 120 days late and these estimations are summed with the defaults.

Ericscc has at least a few problems with its ROI calculation. First of all it counts no losses on loans which are 1 to 30 days late. Second, ericscc does not calculate interest earned, it estimates it based solely on age. This works fine, until irregular or early payments occur. Thirdly, Ericscc is using the wrong value of principal balance on many of the defaulted loans which results in sometimes wildly inflated ROI. Just take a look at the lender CountOnMyBids and you’ll see what I mean.
and at lendstats CountOnMyBids’ ROI is completely different

Erics has me at 15% and Lendstats has me at 5.2%. 15% sure would be nice, but if it were true I’d have over $20k more in earnings, and even though I look to try and find that extra $20k I just don’t see it anywhere, lol. I know it’s a downer, but my overall ROI really is only 5.2%

May. 5, 2011 9:46 pm

I just want to add that there are a couple other criteria which do not show up in the lender profiles at lendstats (yet) that top lenders may use. These are whether borrowers are also lenders (blenders), and repeat borrowers.

At Prosper there are a lot of borrowers who are also lenders, sometimes these are the most sure thing you can get and they sometimes have high rates. You can find a list of blender listings here

There are also a ton repeat borrowers, they also perform very well if they have an extended borrowing history. At lendstats on the loan filter page there are 3 repeat borrower filters, called PB1, PB2, and PB3 and they work great.

Dan B
Dan B
May. 6, 2011 5:42 am

@KenL…………Are you saying that there are Prosper borrowers who are borrowing at high interest rates & that they are also lending at Prosper…………… at presumably lower interest rates than they are borrowing at?

May. 6, 2011 8:47 am

Yes, there are some. Usually the lenders have pretty good credit and get decent rates, but sometimes there are lenders who have bad credit and can’t get such a good rate. Blenders also do tend to pay the loans back faster than most other lenders.

May. 6, 2011 9:08 am

Thanks Peter, yes by all standards I’m really kicking butt in 2.0 Prosper. I still actually can’t believe how well I’m doing. And I’ve got enough lending experience to realize the returns I am getting are real. They aren’t going to come crashing down in the next weeks or months. I do however expect my returns to come down some, but not much. After funding 241 defaults with Prosper 1.0 I know first hand that defaults happen and now I’m managing my risks/rewards as accurately as I can.

May. 6, 2011 9:16 am

About the blenders. Most who are borrowing are not borrowing to re-lend. The loan is usually for some other need. Since they usually have a good understanding of how interest works, they tend to pay loans back faster than other non-lender borrowers.

May. 6, 2011 3:27 pm

, no numbers, yet. But I’m working on it. My biggest default (from 1.0) was actually a blender. $1770 lent and I didn’t get a dime back. This was someone who must have been disillusioned and wanted to recoup his money and then some. I remember bidding on it and realized I made a big mistake after the fact. This lender was getting horrible returns and stopped lending a full year before I bid on him. However due to lack of quality information, I didn’t realize his returns were so bad. These days, I generally bid on blenders who are getting good returns.
his listing:

his lender profile at lendstats

I made that bid long before lendstats existed and largely because of this mistake I designed the blender page at lendstats so that I would never make such a mistake again.

Jan. 10, 2015 8:14 pm

I’m a recent Northwestern University graduate who needs a $5,000 badly but my credit score is low. I recently moved to Atlanta and started my job with the City of Atlanta later than expected.
Can some please be my blessing? I’m in true NEED!
The loan can be paid back in less than 6 months! No problem signing a promissory note.

Jan. 10, 2015 8:16 pm
Reply to  Raymond

Who needs a $5000 loan!