Northbound

Very good article here on the shortcomings of Prosper.com:

To look at the results of Prosper’s loan marketplace, though, is to see not a solution to the credit crisis, but a microcosm of it. Loans to unqualified borrowers; reliance on mathematical models that turn out to be a lot less useful than they seemed; failed hopes that high interest rates could make subprime loans profitable; sky high default rates—Prosper has it all. Prosper’s Web site advertises returns of 6 percent to 14 percent for lenders. But the reality is that the lenders who loaned $188 million through Prosper have not earned anything like these returns. On the contrary, the majority of them have lost money, as they’ve watched their loans go bad at shockingly high rates.

Much like the loans made by banks during the mortgage boom, Prosper’s loans have gone into default at rates much worse than predicted by historical credit data.  In November, 2007, Larsen told the Associated Press that Prosper’s default rate “hovered at around 2.7%.” That, however, included many new loans that simply hadn’t had time to go bad. Larsen refers to this obliquely in the AP story, noting that as more loans matured the rate would rise, but there’s no hint of just how steep that rise would be. Prosper’s data now shows that now shows that close to 36% of the loans made before Nov. 27, 2007—the date of the AP story—have ended in default, roughly thirteen times what a casual reader would have thought from Larsen’s comments. That is close, coincidentally, to the total 39% (or roughly two in five) default for the Prosper loans that have reached the end of their three year term.

What the article doesn’t cover is not only that Prosper borrowers are horrific deadbeats (you know who you are) but that Prosper does nothing, nada, nichevo, not one single thing to help lenders get their money back through collection agencies.  Not that I ever had that much money invested, mind you, but it would have been nice to get some of it back, just a little.  I haven’t gotten a cent back on any of my bad loans, which makes me think that the collection agencies are either asleep or dead.

I think I broke even on Prosper (I haven’t bothered running the numbers, it’s too depressing).  But it certainly wasn’t a huge moneymaker.  It could have been – would have been, I think – if there weren’t just so many damned deadbeats out there who borrow money without thinking how to pay it back.

This month’s post is about how people answer questions on Prosper.  People asking you questions is great, from a borrower’s perspective, because it’s a way for you to shore up gaps in your narrative that you don’t realize are there.  But if you’re going to answer questions, don’t look dumb.

• 2X Relist -Paying a friend back who lent $ for down payment

  • Q: With all of the delinquencies — you are going to need to explain them before you are going to get funded for that amount. Can you please explain your credit history. Thanks.

    A: previous marriage, young, in college and with two kids. this was a different life for me. all debt is barred by the statute of limitations and is uncollectable. will drop off credit report between 11/07 and 10/08. (Sep-07-2007)

This is not what I want to hear.  At all.  “A different life?”  Come on.  This guy owes $26k that he’s never intending to pay off, and the reason why he says he’s not going to pay it off was because it was a different life?  Are you not going to pay bills in this life, too?  Pass.

• Building a Home

  • Q: Can you give us more details about your high revolving credit balance?

    A: Our business is 1 year old this month. Our first year’s sales were over $700,000. Due to my spotless credit, I was able to take advantage of some 0% offers to purchase inventory and get the business off the ground. Almost all of the debt is on the company’s books. (Sep-04-2007)

This is just so bad, I can’t even begin to explain.  If you’re making $700,000 in sales per year, and you’re able to generate debt in low-interest ways, how are you needing to borrow $24k (almost the highest loan you can get on Prosper) at 17%?  And if the debt is on your company’s books, what’s it doing showing up on your credit record?  This is not reassuring, not at all.  (And yet, this is going to get funded.)

• SURPRISE 1st Honeymoon for my hubby after 7 yrs of Marriage

  • Q: Can you shed some light on the 41 delinquencies in the last 7 years that your credit report is showing? Also, if the business is lucrative why the $12k vacation loan?

    A: 4 years ago we were advised by an attorney to file for BK. Since then we have lived primarily on a cash basis. We have learned alot since then & do very well. It is anticipated that this loan will be paid back before the 3 yrs. The only reason for this loan is so he will not catch on to any airfare, hotel reservation or car rental fees through our bank. This is to be a total surprise. We have the funds to cover such a vacation, but I want this to be ALL INCLUSIVE for him. My gift to him.

Surprise! I borrowed $12,000 at 15%!

• Balloon Payment Due
  • Q: 1. Since your stated income is not enough to make the payments on this loan, where will you be getting the money? 2. Could you please explain the reason for all the delinquencies on your credit record?
    A: If I get the loan, I will be paying off the house and land, so I will no longer have the payment of $385.00 for housing, also I will be paying off most of the credit cards so I will no longer that payment. I did not include the income from my new business, which is plenty to pay the payment, however when I pay the land off, I will expand my business. The delinquencies as I stated in my listing were due to a lot of credit card bills after my Husband was injured. I chose not to file Bankruptcy (Aug-30-2007)

But where are you going to live?  You can’t just say, well, I won’t have housing anymore, because I’m selling the property.  You’re going to live somewhere, and pay rent, and that figures into the calculation, right?

• Debt Consolidation

  • Q: what did you put on your cards to maxx them out?

    A: They are not currently max out but have big balances and interest rates. I have 3 department store credit cards I use for work clothes, visa for traveling and emergenices and walmart which I use for household itmes and things for kids. (Aug-30-2007)

I’ve said it before and I’ll say it again. Don’t misspell words.  (This person is worse; she manages to misspell “debt” when she’s in it up to her eyeballs.)

If there’s any advice that comes out of this, it is this:  When you’re answering a question, answer it and don’t try to bullshit your way through it.  Bullshit is a necessary skill in a lot of areas of life, but when borrowing money — especially when borrowing money from me — it’s toxic.  I don’t want to hear excuses; I want the truth.  I can handle the truth.  You tell me the truth, and don’t misspell words, and it’ll help you a lot more than hurt you.

Before I lend you money on Prosper, I have to click on your loan from the “Search Results” page.  I am, frankly, not going to click on every single loan.  There’s no way.  I am able to do one new loan every month or so, and I am not going to look at every loan that’s offered every month.  I have to use the search feature, and my initial decision on whether to fund your loan or not is going to be based on what I see there.  (You want me to lend you money, right?  Of course you do.)

I have a typical search results page pulled up as I’m writing this.  Here’s what I see, in order:

• Title.  A title is a way to let me know what you need the loan for and whether you’re likely to pay it back.  You can’t make a decision solely based on a title, but I often decide whether to click on a title in the first place based on a title.  I’m not clicking on bad titles; life is too short.  Here are some good titles I see:
  • “Consolidating bills”, “PAYDAY LOANS”, “Debt Consolidation”, etc.  Short, sweet, to the point.
  • “Financing needed for sample products to Mass Retail Reps”.  A little longer, but very specific.
  • “Young Family Wants To Get on Track” — very nice without being smarmy.

  Here’s some titles with problems:

  • “Pay Off High Interest Debt and Return to College” — If you’re going to college, how are you going to pay back the loan? Just “Pay Off High Interest Debt” would be fine.
  • “Save Me From The Payday Loan Sharks!!” — Cute, but I’m not here to save anyone from anything.
  • “Starting our new life together Debt Free! DTI EXPLAINED!” — I like it when people explain stuff, but combine that with the picture (a wedding picture) and that means I’m paying for someone else’s lavish wedding, and that’s a no.

  Here’s some titles that I’m not clicking on:

  • Misspellings. Here we go. I am not not never never not clicking on any loans with a misspelling IN THE TITLE. In a small semi-representative sample, there are five loans with misspellings in the title. Four of them had 0 or 1% bidding. The other one was at 40%. Not everyone is as picky as me, but if you can’t spell the word “consolidate” I am not loaning you any money.
  • “Praying for Miracle” — pass.  This is a business venture, not a charity.
  • “Vacation, paying debts” — double pass.  Actually, triple pass. 
• Borrower.  I actually decided not to care about your Prosper user name unless it was just idiotic.
• Group.  Could care less.
• Amount.  This is somewhat important, but I actually am much more interested in your monthly payment as a percentage of your disposable income — information I don’t get on this screen.
• Lender Rate.  Extremely important information – the higher the rate, the better I’m going to like it.  But it’s not what I make my decisions on.
• Credit Grade.  I lend to all credit grades except HR, so that’s not important.  I want to see the actual credit information first.
• DTI.  Not make-or-break information at this point.
• Percent Funded.  This is huge.  I follow (to the extent that I follow anything) a wisdom-of-crowds approach; the more people bidding on your item, the more likely I am to bid on it.  Nothing wastes my time more than bidding on a loan that doesn’t fill.  I don’t click on loans that have no bids. 
• Time Left.  And the reason I can get away with this is that I almost always search on loan applications that end soon – if your loan has been out there for nine days without bids, I’m not going to make the difference.  The shorter the time frame I have to bid, the more secure I am in not being outbid, and the quicker I start earning interest.

Good luck in the borrowing process.

This is another one of those columns where I go through a lot of loans on Prosper and make cruel, cruel fun of people asking me for money, in order to point out how you (the savvy Northbound reader) can do a better job of applying for loans your ownself.  If you’re not interested, go ahead and ignore this and wait for the next piece, which will be on right-wing politics or why my fantasy baseball team sucks (curse you, Albert Pujols) or why the weather here in Jersey sucks.  I’m going to throw this one wide open and look at some loans I normally wouldn’t look at in order to give you an idea.

• Another Prosper Loan! – This one got funded, and I can see why — abnormally high interest rate, very high income, someone who’s clearly enough of a credit risk that they need the money from Prosper.  I didn’t bid on this, though, and I’ll tell you why.  Despite the wealth of good information here, I didn’t bid because of how the guy answered the biggest single question — what are you going to do with my money?  He’s gone through bankruptcy, has various delinquencies, and he’s investing in his small business?  If your first priority isn’t paying back your creditors, I am not going to be in a big rush to become one, sport.
• Desperately Needing Daughter’s Tuition Re-enrollment - Desperately, that’s your key word there.  I can see people coming to Prosper if they’re desperate, but for criminy’s sake, don’t say so.  This isn’t going to get funded, for lots of really obvious reasons.  My chief gripe with this is that I am never, never, never going to pay for anyone’s private school tuition.  I went to public schools and I turned out just fine.  My parents taught in public schools for years.  I support public schools and public education, so don’t come to me for private school tuition for your kid, especially with a 271% DTI.
• Loan Payoff – I am not 100% sure why this one isn’t going to get funded.  They have a lot of what I like — detailed information about their loans, a snapshot of their budget, all sorts of good stuff.  And a nice picture.  Never underestimate having a nice picture.  What we don’t have is a good picture of their income or how they make it.  There’s a bit that the borrower is training for a job in the ministry — and I know first-hand how hard it is to make it when you’re starting out in the ministry.  I think with a little bit more information on income, clearing up the one disputed delinquency, and asking for a higher interest rate (20 to 24%) this might could do well a second time around.
• Trying to lower Credit Card Interest – Having student loans on forbearance is a huge big red flag. Appreciate the honesty, but the borrower needs to have a bit more information about his budget and his ability to pay back the loans.
• NEW START — Somebody got a hold of a template and doesn’t know how to use it. Hilarious. Don’t do this. Don’t EVER do this:
  

  Purpose of loan:
  (explain what you will be using this loan for)

  My financial situation:
  (explain why you are a good candidate for paying back this loan)

  Don’t. Do. This.

• Please help my daughter! — This is actually very nicely done — good explanation of why the borrower got in trouble, good financial details, answered good questions.  Better luck trying again — hopefully with a slightly better title.  I came very close to bidding on this, but it’s just too much money with too big a monthly payment.
• Consolidation and Graduation — If you’re a teacher at a community college and don’t know how to spell “tenure”, I am not lending you one red cent, period, ever.
• Financial Freedom - This is the one that I bid on, and it shows the reason why questions are good.  I was set not to bid on this at all because the borrower didn’t explain her one big delinquency.  But someone asked the question, and she answered — she had a big overpayment from her social services agency.  Well, that’s certainly understandable, and the loan is going to pay them back.  I bid, and with vigor.  (And, yes, I did see the forbearance on the student loans in the question section, but those appear to be her daughter’s loans.)

WSJ:

The other niggling concern is about unscrupulous lenders: would-be loan sharks who view Prosper as a way to leach 26% interest from poor, struggling borrowers looking for a lifeline.

Well, that’s not nice.  Is it true?  Maybe.  But it’s not nice.

Sometimes that shark he looks right into ya. Right into your eyes. And, you know, the thing about a shark… he’s got lifeless eyes. Black eyes. Like a doll’s eyes. When he comes at ya, doesn’t seem to be living… until he bites ya, and those black eyes roll over white and then… ah then you hear that terrible high-pitched screamin’. The ocean turns red, and despite all the poundin’ and the hollerin’, they all come in and they… rip you to pieces. You know by the end of that first dawn, lost a hundred men. I don’t know how many sharks, maybe a thousand.

It’s time to do one of those Prosper columns where I look at a lot of different borrowers and reject them because I’m evil and mean and stingy.  This should be fun.  (As it was the last time I did this, I am not purposefully picking on the borrowers that I link to; I am trying to help the entire borrower community by pointing out common mistakes.)

First, a word on the search process.  I use the advanced search on Prosper, and I typically use the following settings:

1. Minimum Rates.  I use the “Autofill” feature, set here to 12%.  That gets us up to 15% for C ratings and 22.4% for E ratings.  That filters out a lot right there.
2. Debt to Income Ratio.  I set this from 0 to “Any”.  Prosper tends to screw this up for some reason.
3. Loan Amount.  I use the default, $0 to $25,000.
4. % Funded.  I use 5% to 100%.  I don’t look at 0% except for the comedy factor.

And that’s it; I don’t mess with the rest of the settings.  Let’s see what shows up.

• purchaing profesional,researching, academic items – If you misspell two words in the title of your loan, I am not loaning you one single red cent.  I don’t know how I can make this clearer.  (UPDATE:  This didn’t get funded, although it got some bids.)
• One Payment, One Interest Rate. Financial Freedom - I got as far as “Guardian Angel” before I clicked to the next loan.  Over twelve thousand dollars in delinquent loans just isn’t going to cut it.  (UPDATE:  This didn’t come close to getting funded.)
• Catch up before MOVE! – When your only source of income is a “guesstimate”, that’s a real problem. This is actually a tough situation, and the borrower has done a good job in setting out the income, and the credit record is clear. I might support this if the borrower had a full-time job.  (UPDATE:  This got all of five bids.)
• Completing Home Remodel – This was a tough one to turn down – the story was compelling, and the need for the loan was understandable. The one thing the borrower could have done to help herself was to give information about her other loans and a breakdown of her monthly income and expenses.  (UPDATE:  This didn’t get funded; only 38%.)
• Debt Consolidation – I support debt consolidation loans where the purpose is to get a lower interest rate. I don’t support debt consolidation loans when the borrower is going to be paying a greater interest rate with Prosper. If you’ve got a 6.9% credit card, don’t get a 19% Prosper loan.  (UPDATE:  This didn’t get funded.)
• This Loan Will Be Paid On Time In Full - That’s the kind of title I like to see. And I bid on this one. Tell you why:
  • No sob story.
  • Full accounting of income and debts.
  • Asking for a very specific amount — i.e., not asking for $25k just because you can.
  • Very high — but appropriate — interest rate.
  • A do-able monthly payment, in line with family income.
  • 100% funded, meaning other lenders saw the same things that I’m seeing.
  • Willingness to answer questions, even when the answers don’t look so good.
  • Closing quickly, meaning I don’t have to monitor it on a day-by-day basis and run the risk of getting outbid.

I hope this was instructive. Happy lending.

Personally, I’d just as soon everybody in the world not know about this, but there you go.  Apparently, the good people at Prosper have made detailed — very very detailed — information about individual lender profiles available to the whole wide world.  One site out there, LendingStats.com, has published this information in a (drat their black hearts) useful and convenient website, updated daily.

This, of course, means my online portfolio is there for you to see.  And since my user name is not that hard to figure out, I might as well link to it.

If you care about financial privacy at all, then it stands to reason that you either shouldn’t lend with Prosper, or that you should keep your user name to yourself and not give out any personal data on the Prosper profile.  If you’re into statistics at all, though, the information is something of a gold mine — or a big timewaster, however you want to look at it.  It’s probably most helpful for first-time lenders, who can figure out who the really successful people are and see what loans they’re bidding on.

Anyway, the information is there if you want it.  And if you want to track how I’m doing — well, I guess I can’t stop you.

The new Slate article comparing Prosper to other online credit institutions is a bit unfair, if you ask me.  Here’s the pitch:

When I read about microcredit — the practice of making tiny loans to poor people in the developing world so that they can start businesses and break out of poverty—it piqued my interest. And when the Grameen Bank of Bangladesh and its founder, Muhammad Yunus, won the 2006 Nobel Peace Prize for pioneering microcredit work, I was hooked. As an entrepreneur, I dig the idea of helping another jump-start her kitchen-supply business in Ghana. It also eliminates that pointless drop-in-a-bucket feeling to know this specific woman couldn’t open her tamale stand without my $20—let alone the fact that when the loan is repaid, that $20 can get reinvested into another success story.

Well, that’s fine, but that’s not Prosper. Prosper is not in the microcredit business. The minimum loan is a thousand dollars, not twenty bucks. (And it’s all-American; you can’t use Prosper to help tamale stands in Belize, or even China, which could probably use some more tamale stands if you ask me.) So it’s no surprise that Prosper didn’t do better in the analysis:

Prosper is basically eBay for small loans. Say your Aunt Tabitha launches a business knitting leg warmers. Prosper offers her a chance to quickly borrow the capital she needs from other individuals, in a way designed to get her a competitively low interest rate on her loan. Here’s how: Tabitha enters a loan request online at Prosper, including the amount she wants to borrow and the interest rate she wants to pay. Before her loan request goes public, Prosper checks her credit score so that prospective lenders can make sure she’s legit. Lenders, in turn, register at Prosper, transfer money into their Prosper accounts, and then search the site for loans they’d like to fund. When the Flashdance fans find Tabitha’s business, they can lend any amount they want, from $50 to the total loan amount. Just like a hot item on eBay, competing lenders can lend money at a lower interest rate than she asked for. As they compete, Tabitha’s loan costs drop. At the same time, lenders benefit by earning interest on loans they make.

A pretty good summary. Keep in mind that if Tabitha doesn’t get 100% of her loan funded, she doesn’t get squat — and that it’s very, very unlikely that one person will ever fund her entire amount. (Diversification, don’t you know.)

It’s a good idea. And Prosper connects only Americans, so you naturally get better credit-worthiness data than you get for any Third World borrower. But Prosper’s problem is garbage-in, garbage-out: too many people paying off credit-card bills and funding blowout weddings.

Well, now, this is true. There is a lot of garbage on Prosper. You have to sift through the garbage to find those borrowers who are likely to pay you back.  (And this is part of the fun – saying “no soup to you” to potential borrowers is cool; it makes you feel like Mr. Potter from It’s A Wonderful Life.)

But this is where the criticism goes off the rails. If you are involved in Prosper as a charity (and the author endorses some of the more charitable models later in the article) you are going to be disappointed. It ain’t set up that way. Prosper lenders are investors, and let’s face it, you’re a lot more likely to get your money back from someone in this country who has a job than the Chinese tamale-maker.

Sifting through this garbage, and the fact that they don’t accept credit cards or PayPal, made lending on Prosper less than pleasurable. While I did decide to provide inventory financing for a nice guy manufacturing infant mattresses, for all the hassle, I crave more of a change-the-world feeling.

This also isn’t fair. Of course Prosper doesn’t accept credit cards; you’d have to be insane to borrow money on credit cards to invest in Prosper. And PayPal has all kinds of fees and such — and it isn’t that much harder to link your bank account to Prosper than it is to link it to PayPal. And if you want a change-the-world feeling, I’d recommend volunteering for a local non-profit or something. You won’t get that on Prosper. You’re not meant to.

In no particular order – and if you don’t know what I’m talking about, check out Prosper and my previous columns: 

1. The login.  I know it’s probably smart to make you log in every time and not to store your e-mail.  That’s fine.  But almost every time I log in, my cursor moves from the “password” field in the login form to the e-mail, and I end up with nonsense in both fields, and I have to type the whole thing over.  Annoying.
2. The “View loans” link on the “Account Overview” page.  The default view only shows loans made in the last thirty days.  I almost always want to see all my loans at once, and I have to fiddle with the date settings to get them to come up.
3. “Payments in transit”.  My borrowers pay their loans on time (so far so good, knock on wood) but it takes Prosper quite a bit of time to put the money into my account for bidding.  This is probably the third-most annoying thing on this list.  Why does it take so wretched long to put the money in my account?  I know that each individual payment has to be split up a couple of hundred different ways or more, but that’s why there are computers, right, to make that particular task easier?
4. Speaking of that, if you look at a monthly statement, you will see that Prosper works out its payments into your account to the sixth decimal place?  Why?  What for?  What possible use could one-thousandth of a cent be in the calculation?  I suspect a lawyer is involved — insurance companies have been hit before with lawsuits about rounding — but six decimal places?  You gotta be kidding me.
5. I put $50 a month from my bank account to my Prosper account, and it always takes a week to process.  This is simply inexplicable.  Prosper is an arm of eBay (not really, but sort of kind of) and eBay owns PayPal, and if PayPal were this slow, eBay would be out of business in three years.  I am not kidding.  The second-most annoying thing on the site.
6. The groups.  I wish Prosper would get rid of them.  I have no idea what purpose they serve.  The idea is that if you are part of a group, the other group members will peer-pressure you to pay your loan.  If you’re the sort of person that pays off loans, a group won’t help you; if you are the sort of person who doesn’t, no group will be able to force you.  The whole system is a complete waste of my time as an individual investor.  (I do like to see, at least in theory, a group leader “endorse” a listing, but I don’t know who these group leaders are and I have no incentive to trust them.)
7. The loan review process, which is the single most annoying thing about Prosper.  You bid on a loan, win the bid, and then a week or so later, Prosper reviews the loan and tells you that it won’t fund the loan and gives you your money back.  This is so terribly annoying that it’s hard to deal with.  I know why Prosper does this — they’re weeding out identity thieves, and good for them.  I know why it takes so long, because it involves people faxing documents back and forth.  But even when the system works, it works incredibly slowly.  When the system doesn’t work, it’s even slower and ten times more frustrating.

None of these are reasons to quit using Prosper, don’t get me wrong. But everything on this list is — you would think — fixable, and why hasn’t it been done yet?

In this continuing primer on using Prosper, the peer-to-peer lending service, I’m going to take ten listings, at random, and give reasons why these listings might or might not attract investors — together with some general rules of thumb. I don’t mean to overly criticize the people that have posted these listings — in fact, I’m going to try very hard to be nice here. (This is very hard for me, you have no idea.) But I’m only pointing out problems with individual listings to help borrowers as a group.

1. Your income matters. The first rattle out of the box on this listing, the potential borrower says that she lost her job last month. She’s asking for $10,000 to refinance debt. But without an income — and with a credit score of D and a past bankruptcy already — it’s hard to determine how she’ll be able to pay off the debt. Investors are much, much more likely to investigate a given listing if there is evidence that a borrower has enough income to pay back a debt. My advice here would be to have the borrower concentrate on getting a job first. (And I know that isn’t easy.)
2. Don’t make promises you can’t keep. This listing has some obvious problems — misspellings, ALL CAPS, stuff I just can’t stand. (If you don’t do anything else, borrowers, have someone else look over your listing before you send it in.) But this individual has a lot going for him — a good job, working weekends, a nice family, and he works construction. All of this is fine, and I’d be willing to overlook the way he’s presented himself. But at the end, he promises (twice) to pay back the loan, and asks for a “chance to prove myself”. What’s wrong with this? I’m looking at this as an investment opportunity, not a charitable contribution. I’m not interested in promises or emotional appeals, no matter how heartfelt. I want to know how you will pay me back. Promises and fine words don’t cut it.
3. Be organized. This is actually, I think, a very promising listing, but the way the borrower tells the story is very muddled and confused. She’s had a hard time — layoffs and a house fire, and a problem with co-signing someone else’s credit card, but she’s working hard and going to school, all positives. I would feel a lot better about the loan if the listing were a little better organized. What you could do here is have a little table showing debts and interest rates, and a little table showing income and expenses. Lots of listings have exactly this sort of thing, and it’s very helpful because it shows exactly where the money will be going. With that, and some more information on what sort of schooling she’s doing and how it will help her get a good job would be key.
4. Tell me something. I thought it was very clever for this borrower to have a Mr. Met photo in their listing – it made me click on it, so that’s good. (You might be keeping out Yankees fans, though.) But when I clicked, there was practically no information other than that they want to consolidate credit cards. I have to have more than that to make a decision.
5. Know your DTI. This one is actually a very well-written listing, and does a lot of the things that I like to see (other than a couple of typos). The one thing that’s really problematic is the debt-to-income ratio, which is 50%. Prosper can really mess up this calculation — saw a listing the other day that had a person with over a million times more debt than income, which couldn’t have been right. But if that’s right — and with high student loans it certainly could be right; mine is much higher — a lot of lenders will filter this out. If you have a DTI over 20%, you need to explain why.
6. Don’t sell yourself short. This listing is excellent, and it should be completed by the time you read this. Very high income, very detailed description of what the money is needed for and how it will be paid back. The only thing I question is whether this lender could have gotten a better deal than 15% by letting people bid on the listing after it reached 100%. He chose “automatic funding”, which is a great deal for lenders as it guarantees that the listing will close after all the bids are in. But if you don’t choose automatic funding — and I don’t see why you would — you can drive down your interest rate quite a bit as lenders compete to lower their rates to win their bids. I wouldn’t have been surprised to see the final rate go to 11% or maybe lower for this listing.
7. Know what you’re doing.This is my money you’re playing with, Slick. I want to know if it’s going to be put to good use. Generally speaking, loans for business opportunities and entrepreneurs do well. Loans for debt consolidation can do well. Loans to help someone out of a temporary jam do less well. Loans for basic living expenses don’t do well at all. Having said that, I can see where this guy is headed — it’s not an unreasonable loan to make. But most people just won’t lend money for this sort of thing. (I’m seeing requests for money to help with Christmas bills, and that’s just not reasonable.)
8. Be careful with the message you’re sending with your photo. This guy is telling me, “I’m dumb enough to stand in the middle of a racetrack.”
9. Do the math. This borrower has done one of the best things you can do; listed her income and her monthly payments. Except that the income is less than the monthly payments, and she’s on a fixed income. Even though there’s no delinquencies in the account, it’s hard to see how she can manage a monthly payment of almost eight hundred dollars a month. I might support this lender for a smaller loan, but not at twenty thousand dollars at 25% interest.
10. There’s nothing in this world like a good credit rating. This one breaks a lot of my rules. It’s got ALL CAPS. The photo makes it look like the credit card bills were racked up for wedding expenses. There’s a typo or two. And yet, the listing is very successful, because the borrower has a credit rating of A, and no delinquencies, and she looks to be able to pay it back easily. Note for all you prospective borrowers; cleaning up any dings on your credit history will go a long, long way.

Anyway, hope this is helpful. And best to luck to any new borrowers out there.