Hello Friends! Thanks so much for stopping by and visiting my blog, Stock Picks Bob's Advice! As always, please remember that I am an amateur investor, so please remember to consult with your professional investment advisers prior to making any investment decisions based on information on this website.
Like a "mad scientist", I am continuing my Prosper.com experiment of person-to-person lending. I am still not sure whether this 'experiment' will turn out to be profitable for me or not. And I hope that my own experience will help you decide whether it is worthwhile for you to be venturing into this world of group-lending in the pursuit of higher interest returns on your loans as well as the possibility of finding funds that you might wish to borrow as well for your own ventures.
Last month, I wrote up "Update #2". Well, another month has passed, I have contributed some more funds to this account and the results remain mixed.
The background of interest in person-to-person lending stems from the fact that interest rates paid to investors on CD's at banks continue to remain quite low. As reported on CNN.com this past February:
"Since September the central bank has lowered the so-called Fed funds rate, which affects how much consumers pay on credit cards, home equity lines of credit and auto loans, five times from 5.25% to 3%.
As a result, consumers looking to park their cash no longer enjoy a wealth of high-yielding options.
A one-year certificate of deposit is yielding an average 2.75%, down from 3.76% in September, according to Bankrate.com.
Even banks that scored multitudes of new customers by offering online savings accounts with high yields are now scaling back on the sky-high rates they once offered.
The rate on EmigrantDirect's online savings accounts, which yielded 5.05% a year ago, has fallen to 4.05%. ING Direct has slashed the rates on its offering by more than a full percentage point to 3.40% from 4.50% a year ago, according to Bankrate.com."
At the same time, many borrowers are finding that their balances on credit cards are costing them record amounts of interest.
As recently reported:
"When Brenda Fishkin got the letter from Bank of America last month, she thought it might be a joke.
The bank said it planned to almost double the interest rate on her credit card, from about 13 percent to 24.99 percent. Fishkin, who is 60, couldn't figure out what she'd done to incur the higher rate. She had never been late on a credit card payment, had just refinanced her home at a lower interest rate and had just been rewarded by her credit union with a lower rate on her credit card there, she said.
"Trust me," said Fishkin, who lives with her husband in Dallas, N.C. "I wouldn't be aggravated if I were a late customer and I deserved it."
Fishkin's displeasure is shared by hundreds of people who started filling up online message boards recently with complaints that issuers, including industry leader Bank of America, hiked their credit card rates without explaining why."
So with interest paid to savers near record lows, and many people facing credit card debt at high rates of interest, it is not surprising that the internet should offer the opportunity of savers and borrowers alike to meet and do business. But will it be profitable for the average investor like myself? That remains to be seen.
So back to my loan portfolio.
As of April 23, 2008, I have 60 active loans. 55 are now current. 2 are less than 15 days late, 1 is 15 to 30 days late on a payment, 1 is 1 month late and in collections, and 1 is 2 months late and also in collections. Thus far, there have been no default. But it appears that at least one or two of these loans are certainly headed in that direction.
I have now lent out a total of $3,423.57. I have received loan payments totaling $406.98. My current value of my loans is $3,167.84, with an average interest rate of 15.57%. My daily interest accrual is $1.34. Net income totals (interest + fees + reward) $120.07, and as noted there have been not defaults.
I mention "rewards" above, and indeed I have received $75.00 in "rewards" from Prosper.com for referrals which works out to $25.00 awarded to me for sending a new lender to the website, and $25.00 which is actually given to that lender as well when he/she initiates a new loan. (You can earn this $25 and I earn $25 as well when you go to Prosper with the hyperlinks on this blog!)
To get a 'third party' evaluation of my loan portfolio performance, you can visit LendingStats.com and see how they rate my loans. Currently they are estimating, when all things are said and done, that I will be earning closer to 5.36% not the 15.57% when defaults are considered.
Of course when you participate in loans, you depend a lot on what people say about who they are and what they are going to do with the funds. The site of course does verify much of their financial information and rates the borrowers by their 'credit-worthiness'.
But the unknown information about potential borrowers still recalls the great cartoon from the New Yorker by Peter Steiner:
Thanks again for dropping by! I shall keep you posted on my Prosper.com account. The jury is out on whether this shall even be a profitable venture for me! Meanwhile, I continue to add my $50 twice a month to the account and utilize automatic bidding by "Portfolio Plans" to pick my loans I which to participate on.
If you have any comments or questions, please feel free to leave them on the blog or email me at email@example.com.
Yours in investing,
Updated: Wednesday, 23 April 2008 10:38 PM CDT