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 Rating | Term (yrs) | # Previous Prosper Loans | Old Rates | New Rates | Difference |
|---|---|---|---|---|---|
| AA | 1 | 1+ | 4.99% | 5.99% | 1.00% |
| AA | 3 | 1+ | 5.99% | 7.99% | 2.00% |
| AA | 5 | 1+ | 8.99% | 10.99% | 2.00% |
| AA | 1 | 0 | 6.49% | 6.49% | 0.00% |
| AA | 3 | 0 | 7.99% | 8.99% | 1.00% |
| AA | 5 | 0 | 11.10% | 11.99% | 0.89% |
| A | 1 | 1+ | 7.29% | 9.29% | 2.00% |
| A | 3 | 1+ | 8.29% | 10.29% | 2.00% |
| A | 5 | 1+ | 11.29% | 13.29% | 2.00% |
| A | 1 | 0 | 9.70% | 10.70% | 1.00% |
| A | 3 | 0 | 10.40% | 11.40% | 1.00% |
| A | 5 | 0 | 13.40% | 14.90% | 1.50% |
| B | 1 | 1+ | 11.00% | 13.00% | 2.00% |
| B | 3 | 1+ | 11.99% | 13.99% | 2.00% |
| B | 5 | 1+ | 14.99% | 16.99% | 2.00% |
| B | 1 | 0 | 13.99% | 14.99% | 1.00% |
| B | 3 | 0 | 14.99% | 15.99% | 1.00% |
| B | 5 | 0 | 17.99% | 18.99% | 1.00% |
| C | 1 | 1+ | 15.49% | 17.49% | 2.00% |
| C | 3 | 1+ | 16.99% | 18.99% | 2.00% |
| C | 5 | 1+ | 19.99% | 21.99% | 2.00% |
| C | 1 | 0 | 18.49% | 19.49% | 1.00% |
| C | 3 | 0 | 19.49% | 20.49% | 1.00% |
| C | 5 | 0 | 22.49% | 23.99% | 1.50% |
| D | 1 | 1+ | 19.99% | 21.99% | 2.00% |
| D | 3 | 1+ | 21.99% | 23.99% | 2.00% |
| D | 5 | 1+ | 24.99% | 26.99% | 2.00% |
| D | 1 | 0 | 23.99% | 24.99% | 1.00% |
| D | 3 | 0 | 25.99% | 26.99% | 1.00% |
| D | 5 | 0 | 28.99% | 30.49% | 1.50% |
| E | 1 | 1+ | 26.69% | 26.69% | 0.00% |
| E | 3 | 1+ | 28.99% | 30.99% | 2.00% |
| E | 1 | 0 | 26.69% | 26.69% | 0.00% |
| E | 3 | 0 | 31.99% | 31.99% | 0.00% |
| HR | 3 | 1+ | 31.25% | 31.25% | 0.00% |
| HR | 3 | 0 | 31.99% | 31.99% | 0.00% |
| Average | 1.29% |
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?
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.
@Matthew, You are probably right but most of the time they just use incentives to stimulate one side or the other. Lending Club hasn’t changed interest rates in quite a while but I think Prosper is still trying to work out what the sweet spot is for them.
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?
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.
@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?
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
@Dan, Ericscc works out the numbers differently than Prosper (and I use Prosper’s numbers). He uses the listing start date, whereas Prosper uses the origination date of the loans. So, he won’t be able to finalize his numbers until after the middle of the following month because loans listed say on April 30th may have just funded this week. And given that his info is updated irregularly I would say that he doesn’t have a final number displayed yet for April. Having said that his numbers will always be a little different unless loans are funding at a constant rate.
@Bilgefisher, I think the loans they pick for featured loans are ones that may have trouble funding normally. Consequently, picky investors like you and I won’t find many good loans to invest in. I have only ever found one loan that met my criteria.
Hi guys.
I know this is kind of a late comment. Are these rates in %APR? Do they include the fees?
Thanks 🙂
@P2PNoob, These are the interest rates not the APR’s and they do not include fees. You can see the APR’s on this page under “what are loan interest rates?”:
http://www.prosper.com/help/borrowing.aspx#applyingLoan