Prosper Raises Borrower Interest Rates by 1.29%

It has been a busy six months for the risk management people at Prosper. In December they moved away from their auction-based model – a move that has proven to be successful based on their recent growth.

They launched in December with a set of interest rates that were slightly higher than Lending Club’s rates. But in the dark days of January when they were having difficulty attracting borrowers to the platform they decided to lower rates for borrowers. They have tweaked the rates a couple of times since then, but yesterday Prosper announced they were raising rates pretty much across the board, by an average of 1.29%.

Below is a table with the breakdown. The reason there are so many rows is that Prosper offers 1, 3 and 5 years loans which all carry different interest rates and also previous borrowers pay a lower rate than new borrowers.

Prosper RatingTerm (yrs)# Previous Prosper LoansOld RatesNew RatesDifference
AA11+4.99%5.99%1.00%
AA31+5.99%7.99%2.00%
AA51+8.99%10.99%2.00%
AA106.49%6.49%0.00%
AA307.99%8.99%1.00%
AA5011.10%11.99%0.89%
A11+7.29%9.29%2.00%
A31+8.29%10.29%2.00%
A51+11.29%13.29%2.00%
A109.70%10.70%1.00%
A3010.40%11.40%1.00%
A5013.40%14.90%1.50%
B11+11.00%13.00%2.00%
B31+11.99%13.99%2.00%
B51+14.99%16.99%2.00%
B1013.99%14.99%1.00%
B3014.99%15.99%1.00%
B5017.99%18.99%1.00%
C11+15.49%17.49%2.00%
C31+16.99%18.99%2.00%
C51+19.99%21.99%2.00%
C1018.49%19.49%1.00%
C3019.49%20.49%1.00%
C5022.49%23.99%1.50%
D11+19.99%21.99%2.00%
D31+21.99%23.99%2.00%
D51+24.99%26.99%2.00%
D1023.99%24.99%1.00%
D3025.99%26.99%1.00%
D5028.99%30.49%1.50%
E11+26.69%26.69%0.00%
E31+28.99%30.99%2.00%
E1026.69%26.69%0.00%
E3031.99%31.99%0.00%
HR31+31.25%31.25%0.00%
HR3031.99%31.99%0.00%
Average1.29%

The number of loans on their platform has skyrocketed from less than 50 in early January (just after they made the change away from the auction model) to consistently over 600 loans today. As of this writing there were 602 loans available for investors.

It seems that Prosper is not having trouble attracting borrowers, so this change makes sense from that perspective. It is likely that new investor money is what is limiting their growth these days. For the last couple of months Prosper has consistently been offering special investor promotions including their $104 giveaway for new investors last month. Today they just announced that investors get 4% cash back on investments in their featured listings (through May 27th).

Will this new change bring on more investors? It is hard to say. It should help increase overall returns; in fact Prosper published the expected increases in investor returns on their blog post and in emails announcing the change. I am somewhat ambivalent about the change. While I am happy that my returns as a p2p investor may rise I worry about the impact on the borrowers and in particular on borrower defaults.

What do others think? Is this a good move by Prosper?

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Matthew Paulson (P2P Lending News)
May. 19, 2011 4:04 pm

It’s a natural move for Prosper and Lending Club to raise and lower interest rates to match lender demand and market demand. I don’t think there’s too much to be read from it.

Dan B
Dan B
May. 19, 2011 5:51 pm

I didn’t pay that much attention to it but I’m pretty sure that Lending Club also raised some, maybe all, of their rates within the last 2 months or so. in fact wasn’t their an addendum to the last prospectus that was about this specifically?

KenL
May. 19, 2011 8:43 pm

Wow, 602 listings. Hard to believe. I think there were times in January when there were less than 10.

They need to work on adding new states to get more lenders. They should also do like LendingClub and add more states to the folio ranks.

Dan B
Dan B
May. 20, 2011 10:25 am

@Peter……….I recall a recent article where you mentioned that loans issued by Prosper have been increasing every month since January 2011, & that number over $5 million in April 2011, isn’t that correct?
Ericscc has a chart that has Prosper’s April 2011 numbers dipping from March & around $4 million. Do you know the reason for the discrepancy?

Bilgefisher
May. 20, 2011 10:46 am

It will be awhile before we see the effects of the change. I like the fact that more loans will now have my minimum rate requirement before I look at them. Let’s hope it does attract more investors. I still hope their investor incentives expand. None of my picked loans seem to ever fall in the cash back category.

Jason

P2PNoob
P2PNoob
Jun. 16, 2011 10:10 am

Hi guys.

I know this is kind of a late comment. Are these rates in %APR? Do they include the fees?

Thanks 🙂