Prosper.com Lending: Good, but not for everyone!

I have been a lender on prosper.com for some time now. I got in before the SEC silent period and have had good results. I belong to a group on Prosper and we have our own message boards to discuss all things finance.

A lot of people lending on prosper have had mixed results. A lot of my fellow lenders in my group have had a lot of loans default on them. Fortunately for me I have had only 1 go bad and that one was picked by a "portfolio" system that I found out was a very bad idea.

I like the idea of prosper and people lending to each other without using a bank. It can be a great way to earn money on your money IF you know what you are doing. You need skills in financial analysis and credit analysis as well. I am fairly strong in these areas and feel I have made sound lending decisions.

The down side is that you get people who lie. No amount of numbers, filters, or re-reading can protect you from that. It comes down to a personal judgment call which will not always be right. You can get carried away by the high rates that people will accept and not see that one small detail that is a red flag. Some people are truly skilled at spinning information and cheating people.

When I was lending and bidding on loans I was quite selective and so far that has paid off. I am reaching the 1 year mark with some of my loans and to only have 1 default and 3 pay in full out of 43 is pretty good. I am also a borrower on prosper for a small loan to help build my credit and reinvest the money at a higher rate (not recommended for everyone!).

I am looking forward to the ability to trade my loans on a secondary market so I can dump some that are paying but do not fit my "mold" of a good borrower. I mainly wish to sell the ones that my portfolio plan picked for me and I do not like but luckily have not been late yet.

If you do decide to venture into social lending please do your homework first. Learning the hard way is NOT the way to learn about finance and investing. It hurts your bottom line and cause much undue stress in your life. I only suggest it using a little of your investment money and be conservative.