On my last Prosper Update, Traciatim asked:
Coudl [sic] you explain how are you still up money when one of your loans defaulted? There is a new service coming to Canada that I was very interested in, but even taking out 10 loans at the start and only 1 defaulting I find the math hard to make a profit with (or at least, more than say a GIC)
1. My initial investment was $275.00, from which I made $405.00 in loans.
2. Simple rate of return without concern for present value of money, etc is 17.60%. Of course, that’s probably not the way to think about it since I continued to make loans. (I haven’t made any more because during the quiet period I moved to DC and I cannot make loans anymore.)
3. If I assume that I recover my initial loan amounts, and my late loan goes to default, then I will make about $103.82 and 37.75% in simple interest. (Bottom chart & calculations) Of course, that would be an overall loss for the total amounts in loans.
So in that sense, I think I made money on Prosper even if other methods say I didn’t. I’m not sure I’d use this to fund retirement, but it was fun to try it out and come out ahead… so far.
You can see how LendingStats does it here.
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{ 1 comment… read it below or add one }
That math seems to make much more sense and is in line with what I was expecting. Since I probably wouldn’t be able to include the sign up or bonus money I could assume that unless I am incredibly lucky this seems like a losing battle before I even begin.
The idea seems so promising, and has me intrigued. I think I’ll watch the company that’s opening in Canada as they aren’t available in my province at launch anyway. Hopefully they will have much better statistics available once they are available where I live.
Thanks for the detailed answer.